Question

Which of the following will prevent a corporation from qualifying as an S corporation?A. Deriving more than 40% of its gross receipts from passive income sources.B. Having a partnership as a shareholder.C. Owning more than 50% of the stock of a domestic corporation.D. Having 100 shareholders.

Answer 1

Answer:

Having a partnership as a shareholder.

Explanation:

An S corporation or an S sub-chapter is a small business corporation that has been allowed by the Internal Revenue Services(IRS) to file its tax as a corporation. IRS recognizes an S corporation as a legal form of business ownership. An S corporation may elect to pass its income and losses deductions directly to the shareholders for federal tax purposes.

For a small business corporation to qualify as an S corporation, it must meet specific requirements. Some of the requirements include

1. Shareholders should be individuals, certain trusts, estates, and specific exempt organizations. Shareholders can not be corporations or partnerships.
2. Shareholders must be US residents or citizens
3. The Entity should not have more than 100 shareholders.