See, e.g., IRC Sec. 6103.https://www.rivkinradler.com/publications/the-biden-administrations-revenue-proposals-for-fiscal-year-2022-tax-increases-and-forced-recognition-of-capital-gains/ .https://www.rivkinradler.com/publications/bidens-2022-revenue-proposal-profits-interests-and-the-alchemy-of-compensation/ . IRC Sec. 1411(a)(1). IRC Sec. 1411(b).

S Form 1125-A, Cost of Goods Sold includes a line for “cost of labor” which is capitalized as part of the cost of goods sold. The first page of Form 1120-S reports the total amount of cost of goods sold. Officers are generally treated as employees of the corporation. IRC Sec. 1368. Shareholders’ Pro Rata Share Items (Sch. K), the Balance Sheet (Sch. L; especially loans to shareholders), the Accumulated Adjustments Account (Sch. M-2), and the Sch. K-1 issued to each person who was a shareholder during any part of the taxable year. Part II of Sch. E of IRS Form 1040 tells us whether the shareholder is reporting their share of S corporation as passive or nonpassive income. This is followed up by checking the shareholder’s IRS Form 8960, Net Investment Income Tax, to see whether the shareholder has reported their share of S corporation income as non-section 1411 income, which is not subject to the 3.8% tax, meaning the shareholder has materially participated in the corporation’s business. IRC Sec. 1411. How many times have you seen the loan amount to a shareholder increase year over year, while no distributions are made, and little-to-no compensation is paid? Plenty, right? In those situations, how often have the parties executed a loan agreement or otherwise acted as bona fide lenders and borrowers? Few and far between, I bet. They don’t even bother to impute interest under IRC Sec. 7872. Drives me mad. Such inconsistent reporting probably does not fall within the scope of IRC Sec. 6037(c) which requires that a shareholder’s tax return treat “subchapter S items” in a manner which is consistent with their treatment on the corporation’s tax return. The shareholder must identify any inconsistent treatment to the IRS. See IRS Form 8082, Notice of Inconsistent Treatment. IRS Form 1125-A. See IRS Form 8825, Rental Real Estate Income and Expenses of a Partnership of an S corporation – there is a line for wages and salaries. IRC Sec. 1366(a). IRC Sec. 1366(b). IRC Sec. 1363. One exception

IRC Sec. 1202. IRC Sec. 1411. The 3.8% surtax is not deductible by the taxpayer for purposes of determining their income tax liability.However, the tax does not apply to the gain recognized by a shareholder of an S corporation on the sale of their stock, or to the shareholder’s share of the gain realized on the sale by the corporation of its assets, if the shareholder materially participated in the business.

[xxi] The surtax on net investment income may also apply to a shareholder if the shareholder does not materially participate in the business. IRC Sec. 1411. [xxii] IRC Sec.

nt income beneficiary. Under IRC Sec. 1361(d)(1)(B), the income beneficiary of a QSST is treated (under IRC Sec. 678) as the “owner” of that portion of the trust that consists of S corporation stock; the beneficiary is treated as the shareholder for purposes of the pass-through, basis and distribution rules applicable to S corporation shareholders. But see Treas. Reg. 1.1361-1(j)(7). But see Treas. Reg. 1.1361-1(j)(8) which provides that the beneficiary will not be treated as the owner of the stock for purposes of determining the income tax consequences from the disposition of the stock by the trust. Treas. Reg. Sec. 1.1361-1(j)(6). IRC Sec. 1361(c)(2)(A). Treas. Reg. Sec. 1.1361-1(j)(6)(iii). IRC Sec. 1374 imposes a corporate-level tax on certain S corporations. Let’s assume that the sale occurs before the enactment of the Build Back Better bill, and that every shareholder is a material participant in the business. Thus, the 3.8 percent surtax on net investment income will not apply. IRC Sec. 1411. 20 percent capital gains rate on the liquidating distribution plus 3.8 percent surtax on net investment income. There is an exception under current law when the selling shareholder of S corporation stock was a material participant in the corporation’s business – the gain recognized by such a selling shareholder is not subject to the 3.8 percent surtax. IRC Sec. 1411(c)(4). Or if the selling shareholders had agreed with the buyer that they would make an election under IRC Sec. 336(e). There are many reasons a buyer may want to acquire a target’s equity rather than its assets; for example, there may be difficult-to-transfer assets, or it may be important to the buyer that the target’s EIN be preserved. Treas. Reg. Sec. 1.338(h)(10)-1.Of course, the buyer may be just as surprised at having acquired a taxable corporation that had not paid its income tax for several years. In that case, the buyer will exercise its rights under the sale agreement to compel the seller to indemnify the buyer

As an aside, it’s interesting to note that the IRS has never seriously treated a child’s use of a parent’s property as a gift.CCA 202118009. IRC Sec. 1411. IRC Sec. 1411(c)(2).

See Lines 1 and 2 of Part III of Sch. K-1 to Form 1065 (partnership tax return) and to Form 1120-S (S corporation tax return).And do not forget the 3.8% surtax on net investment income under IRC Sec. 1411 if the individual taxpayer is not a material participant in the business. See IRC Sec. 469 and Reg. Sec. 1.1411-5.[ix] IRC Sec. 1223.[x] IRC Sec. 1(h), Sec. 1221, and Sec. 1231.

There are others. See https://www.rivkinradler.com/publications/tax-highlights-the-american-families-plan/ . Or from 40.8% to 43.4% with the 3.8 percent federal surtax on net investment income under IRC Sec. 1411. The surtax does not apply to an owner’s share of partnership or S corporation business income if the owner materially participates in the entity’s business.

By contrast, a corporation will have sufficient nexus with NY for a taxable year if it has receipts from NY of at least $1 million for that year. NY Tax Law Sec. 209(1)(b). Of course, any knowledge of the tax law is valuable in and of itself. Seriously. It offers a glimpse into the infinite. . . . Don’t make that face. No, I am not regressing to Sesame Street. See Tax Rule No. 1: Read, then keep on reading. A corporation the taxation of which is governed by subchapter C of the Code. IRC Sec. 11. As a result of the 2017 Tax Cuts and Jobs Act (“TCJA”; P.L. 115-97), corporate taxable income is subject to Federal tax at a flat rate of 21%. Closely held corporations, and especially those that are family-owned, have to vigilant to avoid constructive dividends; for example, the corporation’s payment of a shareholder’s personal expenses, or the shareholder’s use of corporate-owned property. IRC Sec. 301. IRC Sec. 1(h). The 3.8% surtax on net investment income (which includes dividends) under IRC Sec. 1411 may also apply, depending upon the amount of the shareholder’s adjusted gross income. A corporation the taxation of which is governed by subchapter S of the Code. IRC Sec. 1361 and Sec. 1362. Of course, this assumes that both the corporation and the shareholder are eligible. See IRC Sec. 1361(b). IRC Sec. 1363.An important exception to this rule is the corporate-level built-in gains tax under IRC Sec. 1374. Generally speaking, this tax will be imposed if, within 5 years after the effective date of its S election, the corporation realizes a gain on the disposition of assets that it owned on such date. A corporate-level tax is imposed to the extent of the gain that was inherent in the asset at the time the S election became effective. IRC Sec. 1366.If the shareholder does not materially participate in the S corporation’s business, the shareholder’s pro rata share of this pass-through income may also be subject to the surtax on net investment income. IRC Sec. 1411(c)(2)(A). The surtax is

In the case of capital gains, the top federal rate of 20% will apply to a married couple filing jointly with taxable income exceeding $488,850; for a trust, the threshold is $12,950. IRC Sec. 1411. Married individuals filing jointly are subject to the tax when their “modified adjusted gross income” exceeds $250,000; trusts when it exceeds $12,500.https://www.taxlawforchb.