Taxation in the United States and Terminating Event
Week Five Problems
December 14, 2013
ACC/455
C 11-31 Termination of the Election:
Orlando Corporation, a calendar year taxpayer, has been an S corporation for several years. On July 10, 2009, Orlando authorizes a second class of nonvoting preferred stock that pays a 10% annual dividend. The corporation issues the stock to Sid on September 12, 2009, to raise additional equity capital. Sid owns no other Orlando stock.
a. Does Orlando’s S election terminate? If so, when is the termination effective?
Yes Orlando’s S corporation election would terminate on the day the terminating event occurred which would be September, 12 2009; when they issued the stock to Sid. It may also terminate because Sid may not be an eligible member to own Orlando’s stock. This would me Orlando’s would fail to meet to qualifications for S election.
b. What tax returns must Orlando file for 2009? When are they due?
Because the terminating event occurred on a day after March 15, 2009 of the tax year; an S termination year has been created. Now they have to file an S short form for tax year Jan 1, 2009-September 11, 2009 (form 1120S) and a C short form for tax year September 12, 2009-December 31, 2009(form 1120) (Anderson, Pope, & Kramer, 2010, p. 11-10). The returns are due at the same time that they were due had there not been a change to the S election status (Anderson, Pope, & Kramer, 2010, p. 11-11). This would include any extensions that would need to be filed. I believe this would be April 15, 2010.
c. How would your answer to Parts A and B change if instead the second class of stock were nonvoting Class B common stock?
I don’t believe the Internal Revenue service would count Class B nonvoting common stock as a second class of stock as long as there was no difference in rights with respect to each Class A and Class B stock (IRS, 2006, p. 17). Discussion Question 10-1 Javier is retiring
December 14, 2013
ACC/455
C 11-31 Termination of the Election:
Orlando Corporation, a calendar year taxpayer, has been an S corporation for several years. On July 10, 2009, Orlando authorizes a second class of nonvoting preferred stock that pays a 10% annual dividend. The corporation issues the stock to Sid on September 12, 2009, to raise additional equity capital. Sid owns no other Orlando stock.
a. Does Orlando’s S election terminate? If so, when is the termination effective?
Yes Orlando’s S corporation election would terminate on the day the terminating event occurred which would be September, 12 2009; when they issued the stock to Sid. It may also terminate because Sid may not be an eligible member to own Orlando’s stock. This would me Orlando’s would fail to meet to qualifications for S election.
b. What tax returns must Orlando file for 2009? When are they due?
Because the terminating event occurred on a day after March 15, 2009 of the tax year; an S termination year has been created. Now they have to file an S short form for tax year Jan 1, 2009-September 11, 2009 (form 1120S) and a C short form for tax year September 12, 2009-December 31, 2009(form 1120) (Anderson, Pope, & Kramer, 2010, p. 11-10). The returns are due at the same time that they were due had there not been a change to the S election status (Anderson, Pope, & Kramer, 2010, p. 11-11). This would include any extensions that would need to be filed. I believe this would be April 15, 2010.
c. How would your answer to Parts A and B change if instead the second class of stock were nonvoting Class B common stock?
I don’t believe the Internal Revenue service would count Class B nonvoting common stock as a second class of stock as long as there was no difference in rights with respect to each Class A and Class B stock (IRS, 2006, p. 17). Discussion Question 10-1 Javier is retiring
References: Anderson, K. E., Pope, T. R., & Kramer, J.L., 2010, Prentice Hall’s Federal Taxation 2010: Corporations, partnerships, estates, & Trusts, 23rd Ed, Upper saddle River New Jersey, Prentice Hall Internal Revenue Service, 2006, S Election Termination, retrieved from http://www.irs.gov/pub/irs-prior/p589