Eva is the sole shareholder of an S corporation.Eva gifts half of her S corporation stock to Adam,her newborn son.The S corporation is a highly profitable manufacturing company.The pass-through of the ordinary income to Adam can be subject to tax at his parents' marginal rate.

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As the sole shareholder of an S corporation, Eva's ordinary income from the corporation would be subject to tax at her own marginal rate. However, when she gifts half of the stock to her newborn son, Adam, the pass-through of the income would be subject to tax at Adam's parents' (presumably Eva's and her spouse's) marginal rate since Adam is a minor and not yet subject to separate taxation. This can result in significant tax savings for Eva and her spouse.

Eva Is the Sole Shareholder of an S Corporation