S Corporations: Allocation of Results 2024

Overview

Review and discuss topics focused on how the tax results of an S corporation are allocated among the shareholders. The determination of the nature of the allocated items can dramatically alter the shareholder-level tax consequences. When stock ownership changes during the S corporation’s year, a complex set of rules determines the allocation among shareholders. Consider how these rules apply when new stock is issued, redeemed or sold. If there is a mid-year termination of the S-election, the rules that determine the taxable income of the S corporation and C corporation can determine not only the amount of tax but also who bears the tax cost of operating the business. We will discuss these rules and the related tax compliance requirements.

Highlights

• The general approach to the allocation of S corporation tax results to the shareholders
• Separately stated and non-separately stated items determination and consequences
• Allocation complications and related tax consequences when the stock of the S corporation is sold
• Special allocation rules when new stock is issued or outstanding stock is redeemed
• Allocation of taxable income when the S corporation election is terminated mid-year
• Tax compliance responsibilities related to a mid-year termination of the S corporation status

Prerequisites

Understanding the basics of taxation of individuals, corporations, S corporations and partnerships.

Designed For

CPAs and attorneys.

Objectives

• Determine the general approach of allocating the tax results of an S corporation to the shareholders
• Explain how stock sales affect the allocation of taxable income and the tax consequences of the stock sale
• Recognize the special allocation complications when new stock is issued or existing stock is redeemed
• Recognize the allocation and tax compliance complications presented when the S corporation election terminates mid-year

Preparation

None