Question

Which corporation is eligible to make the S election?

1) One-person limited liability company
2) Insurance company
3) Non-U.S. corporation
4) U.S. bank
5) None of these choices can select S status

Answer 1

Non-U.S. corporations are not eligible to make the S election; only domestic corporations that meet specific criteria such as having 100 or fewer shareholders and only allowable shareholders (like individuals and certain trusts) can elect S status.

Step-by-step explanation:

To determine which corporation is eligible to make the S election, it is important to understand that S corporations are domestic corporations that can avoid double taxation (once to the corporation and again to the shareholders) by electing to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code. Non-U.S. corporations are not eligible to make the S election because one of the requirements is being a domestic entity.

Additionally, to elect S status, there are other criteria a corporation must meet, such as having a limited number of shareholders (100 or fewer) and having only allowable shareholders (individuals, certain trusts, and estates but not partnerships, corporations, or non-resident alien shareholders).

In contrast to corporations, individuals who run their own businesses, whether as sole proprietorships or single-employee corporations, must be aware of the different federal taxes they are responsible for, which can include income tax, self-employment tax, payroll taxes (if they have employees), and others depending on the structure of their business.