S Corporation Eligibility and Election
Learn the decision pattern the exam can test, then apply it to a realistic taxpayer fact pattern.
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What is the maximum number of classes of stock allowed in an S corporation?
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Differences in voting rights can be permitted, while differences in distribution and liquidation rights can create a second class of stock.
A tax-practice scenario
A corporation has a nonresident shareholder and side agreements about distributions. Test eligibility before preparing Form 2553.
Identify the taxpayer, entity, transaction, and tax period first. Write the controlling tests in order, apply only the relevant facts, and keep the reporting result separate from any planning recommendation.
Do not take this shortcut.
Checking only the 100-shareholder limit while ignoring every other eligibility test.
Turn the rule into recall.
Use an election checklist covering entity, shareholders, stock rights, consents, effective date, and late-election relief.
- ExplainState the governing distinction without notes.
- ApplyChange one fact in the scenario and predict the new result.
- RetrieveAnswer an unseen question, then review every option.
Official source and scope
This lesson follows the current PSI content outline and uses the IRS reference below for the underlying tax or practice framework. Always confirm current forms, instructions, thresholds, and effective dates before advising a taxpayer.
