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.
47:26
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Quick takeaways
- The Maggard v. Commissioner case emphasizes the critical need for S-corporations to maintain compliant governing provisions to protect their tax election status.
- The Estate of Thomas Fry ruling highlights the necessity for clear documentation distinguishing between equity and debt in S-corporation financing to avoid jeopardizing tax status.
Deep dives
Understanding the S-Corp Election and Distributions
The case of Maggard versus Commissioner sheds light on the intricacies of S-corporation elections, particularly the significance of complying with rules surrounding distributions. S-corporations must adhere to a single class of stock requirement, meaning all shares should confer equal rights to distributions and liquidation proceeds. This case highlighted that disproportionate distributions do not automatically terminate an S-corp election if the governing provisions are clean. The court emphasized that the determination is based not on the behavior of the corporation but on the articles of incorporation and bylaws to ensure compliance with the governing provisions.
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