The assignment is as follows: Your client Accounting Factory, Inc. is a calendar year S Corporation. They elected S Corporation status on January 1 of 2019 for the 2019 tax year. They realized on June...

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The assignment is as follows:
Your client Accounting Factory, Inc. is a calendar year S Corporation. They elected S Corporation status on January 1 of 2019 for the 2019 tax year. They realized on June 1 of 2021 that as of that day they had 102 separate shareholders. They've asked you to advise them on what impact this may have on their S Corporation election. If this has a negative impact on their election, they'd also like to know their options for re-electing S Corporation status. Draft a letter to your client advising them on their questions and concerns. Include relevant background information on S Corporation rules and elections. The letter needs to be between 750 and 1,000 words.
Answered Same DaySep 18, 2021

Answer To: The assignment is as follows: Your client Accounting Factory, Inc. is a calendar year S Corporation....

Tanmoy answered on Sep 18 2021
152 Votes
Accounting Factory, Inc – S Corporation rules and elections
To
Accounting Factory Inc.
Sub: Drafting questions and concerns for S Corporation election
Respected
Sir,
This is to inform you that Accounting Factory Inc. being a growing company faces lot of complexities with respect to tax. Accounting Factory Inc.’s decision to register themselves as S Corporation as a business entity offers the entity significant tax benefits and preserve the flexibility of ownership. It was due to a tax code enacted by the Congress in 1958 which boosted the creation of small and family business by abolishing double taxation which the conservative companies are exposed to (Incfile, 2021). Also, shareholders of S Corporation report the flow through of income and losses on individual personal tax returns and their taxes are assessed based on their individual income tax rates. Due to this the S Corporations are able to avoid double taxation. At the entity level Accounting Factory being a S Corporation are responsible for tax based on build-in gains and passive income. Accounting Factory in order to get re-elected for the status of S Corporation must fulfil the following requirements.
1. Accounting Factory Inc. must be a domestic corporation
2. There must be shareholders in the form of individuals, certain trusts, estates excluding partnership firms, corporation and shareholders who are non-resident or from foreign origin.
3. There cannot be more than 100 shareholders
4. There must be only one specific stock class
5. There are no guidelines with respect to the minimum number of shareholders.
6. All the shareholders must be citizens of United...
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