1. I. S Corp Issues 165 Reasonable Compensation
Deducting Losses without Basis
Deducting personal expenses

2. S Corp and Financial Planners
165
S Corp and Financial Planners
Fleicher, TC
C. Taxpayer was a CFP and licensed sales person for insurance products.
He was licensed not the S Corp.
IRS determines income paid by brokerage firms was his not the S Corporation.

3. II. Failure to File 166-167 $200 for returns years beginning in 2017.
Ensyc case- reasonable cause when the return was filed away but not filed.
First-Time Penalty Abatement

4. III. Choice of Year End 168 Calendar Year End
Natural Business Year End
444 Election – September, October, November Year End.
52/53 Week Year End
Year end that IRS approves- Good luck with that one.

5. 168
IV. Choice of Year End
E. Natural Business Year- 25% of gross receipts fall into last 2 months of year.
Must pass for 3 consecutive years
Need 47 months to make election
Predecessor business in same business counts.
Make election with filing for Form 2553 along with disclosure and 47 month receipts
To change to Natural Year Use Form Application to Adopt, Change or Retain Tax Year
No Advance payment required

6. IV. Choice of Year End 169 F. IRC 444 Election
September, October November Year End
Election made on Form 8716
Earlier of File by the 15th day of the 5 month or the due date of the return.
Automatic 12 month extension “File Pursuant to Section ”
Warning: Change cannot increase the deferral period.
Form Required a payment for deferral
As per Rev Proc Form 1128 must be filed no earlier than the day following the end of the first effect year and no later than the due date of the first elective year.
Rev Proc – can use the same year as a majority of its ownership.

7. V. Accounting Methods 170 Cash Basis(Not a Tax Shelter)
All Corporations annual gross receipts of $1M and less.
Certain Businesses with annual gross receipts between $1M and $10M.
Service Business can continue to use cash basis.
REV PROC to $1M
REV PROC $1M to $10M
IRC SEC 464(c)(3) and (e)(2) – an entity other than a C Corporation where more than 35% of the tax losses are allocated to limited partners or limited entreprenuers is considered a tax shelter.
Accordingly if you have a loss you might be forced to convert to accrual basis

8. S Corps Can own 170 C Corporations Partnership interests
Disregarded Entity LLC
Qsubs- own 100% and make an election.

9. Benefiting From Multiple Entities
170
Benefiting From Multiple Entities
DOG HOUSE, S Corp.
Most of our clients look like this

10. Dead Puppies Everywhere
170
Multiple Entities
DOG HOUSE, S Corp.
Dead Puppies Everywhere

11. SEPARATE ENTITIES FOR LIABILITY PURPOSES
172
Multiple Entities
QSub 1
QSub 2
DOG HOUSE, S Corp.
SEPARATE ENTITIES FOR LIABILITY PURPOSES

12. For tax purposes it looks like this!
170
Multiple Entities
DOG HOUSE, S Corp.
Q Sub Election is made by filing Form the timing of the election can be found on page 2-45 of your manual.
For tax purposes it looks like this!

13. SEPARATE ENTITIES FOR LIABILITY PURPOSES
170
Multiple Entities
LLC1
LLC 2
Now a days we can use disregarded LLCs for the same purpose
DOG HOUSE, S Corp.
SEPARATE ENTITIES FOR LIABILITY PURPOSES

14. Common Problem 170 S1 Corp S2 Corp Cash -0- Cash $100 K Loss 100 K
Income $100 K
Client
Basis In S1 $0
Basis in S2- $100K

15. Common Problem 170 S1 Corp S2 Corp Cash -0- Cash $100 K Loss 100 K
Income $100 K
Client
Basis In S1 $0
Basis in S2- $100K

16. Common Problem 100% 170 S1 Corp S2 Corp Cash -0- Cash $100 K
Loss $100 K
S2 Corp
Cash $100 K
Income $100 K
100%
Client
Basis In S1 $0
Basis in S2- $100K

17. Q Subs 173 The Subsidiary is liquated from an income tax stand point.
F. Ball Case TC Memo
Be careful if you purchase the stock of the company and then make the Qsub election.
NEW CASE: Shareholder basis is not increased by making a QSub election
(Ball, T.C. Memo, and affirmed by the US Court of Appeals, Third
Circuit on 2/12/2014, 113AFTR 2d ). S corporations should not
necessarily purchase the stock of a corporation and follow with a QSub election.
1. On purchase, the S corporation pays for the FMV of the underlying assets.
2. A subsequent QSub election causes the deemed liquidation to be governed
by IRC Sec. 332, which requires the parent to take a carryover basis of the
subsidiary’s assets pursuant to IRC Sec. 334
3. An acquiring S corporation that is planning to sell a subsidiary soon after
acquiring it may be better off to keep it as a separate C corporation and
structure the subsequent sale as a stock sale. This would allow the S
corporation to take advantage of its FMV stock basis.

18. In the restructuring there is no loss recognized.
176
New CCA – Qsub
In the restructuring there is no loss recognized.

19. New CCA – What happens when the S Terminates
176
New CCA – What happens when the S Terminates
Upon S Termination- Income/loss get allocated between S and C years based on days. The subsidiaries become separate C corporation unless a consolidated return is filed.

20. How do you make the Qsub Election
X. Qsub Election is on page 193
PATAP