Tax Notes Talk Top Tax Cases of 2024, Part 2: S Corporations
Feb 28, 2025
In this discussion, tax professionals Damien Martin and Tony Nitti from EY dive into key S corporation cases for 2024. They examine the implications of disproportionate distributions in the Maggard case, highlighting S election complexities. Insights into navigating IRS requirements for S corporations are shared, alongside challenges stemming from corporate mismanagement. The duo also emphasizes the critical role of operating agreements and documentation in maintaining tax status, ensuring viewers grasp the intricate tax landscape that S corporations navigate.
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S Corp Election Termination
- S corp elections terminate frequently due to misunderstandings about single class stock rules.
- Disproportionate distributions alone don't terminate the election if governing provisions grant equal rights.
Maggard v. Commissioner
- In Maggard v. Commissioner, disproportionate distributions and shareholder exclusion did not terminate the S election.
- The tax court prioritized governing provisions over actual distribution practices.
Review Governing Provisions
- Review S corp governing provisions, especially LLC operating agreements, for compliance with single class stock rules.
- Fix any non-identical governing provisions to avoid S election termination and potential private letter ruling costs.