Which of the Following Is Most Likely to Prevent a Valid S Corporation Election? S Corporation Election Overview

An S corporation election taxes business income once at the owner’s tax rate. To elect S corp status, file IRS Form 2553 by March 15th of the elected tax year, or file a late election.

Requirements for S Corp Election

Requirements include:

  • 75 or fewer shareholders
  • One class of stock
  • Eligibility of shareholders

Invalidating Factors

Factors preventing a valid S corp election include:

  • Over 75 shareholders
  • Multiple classes of stock
  • Ineligible shareholders

S corps avoid double taxation of income, unlike C corps. They pass losses and profits to owners’ personal returns.

Common Questions

Which one of the following conditions will prevent a corporation from making a valid S election?

The presence of over 75 shareholders, multiple classes of stock, or ineligible shareholders will prevent a valid S corporation election.

What is not a requirement for S corporation election?

A requirement not listed for S corporation election is multiple classes of stock, as S corporations are only allowed to have one class of stock.

Leave a Comment