cross-posted from citizenshipsolutions
Part A is here .
1. What exactly is an S Corporation?
An “S corporation” is a corporation which elects a specific kind of tax treatment under the Internal Revenue Code. It is NOT a type of corporation. Rather it is the “tax treatment” used by a corporation. (A corporation can be incorporated in any state.)
The following tweet referencing an excellent article from Wolters Kluwer explain this point.
About the "S Corp" and @USTransitionTax: 1. The S Corp is a legally formed corporation 2. The S Corp is taxed as a "pass through" entity – meaning the shareholders are taxed as individuals the on profits whether the profits are actually distributed or not. https://t.co/noZJ8lgYM4 pic.twitter.com/beCsOnYhPi
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) November 18, 2018
The first thing to remember is that an S corporation is simply a for-profit corporation that elected to be taxed under Subchapter S of the Internal Revenue Code, making it a “pass-through” entity for tax purposes. It is incorporated under and governed by the same state corporation laws as a corporation that was not eligible for S corporation tax status or whose shareholders chose not to elect that status. Therefore, an S corporation has the same non-tax advantages as a regular corporation. (A regular corporation is also referred to as a C corporation when discussing its tax status because it is taxed under Subchapter C of the Internal Revenue Code).
Because an S Corporation is a corporation with a specific kind of tax treatment (the profits are passed through to the shareholders), one can say that an S Corporation is really a creation of the Internal Revenue Code (On The Third Day Congress Created The S Corporation).
2. How the requirements of an S Corporation reflect that that S Corps are the “small business corps” of America