What is S corporation termination?
In short
An S election ends if shareholders owning more than half the shares revoke it, if the corporation stops qualifying (for example, it gets an ineligible shareholder or a second class of stock), or after excess passive income for three years in a row.
Key takeaways
- The passive income test applies only to a corporation with earnings and profits from its C corporation years, when passive income exceeds 25% of gross receipts.
- Once terminated, the corporation generally can't re-elect for 5 years without consent.
- Inadvertent terminations can sometimes be relieved by the Internal Revenue Service.
Where it's tested
TCP: S Corporation Compliance & Planning — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A corporation's S election was terminated. Generally, how long must it wait before re-electing S status without the IRS's consent?