Tax-exempt income at the corporate level flows through as exempt income to S shareholders.

Name: Tax-exempt income at the corporate level flows through as exempt income to S shareholders.
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S corporations are pass-through entities, meaning income, losses, deductions, and credits flow through to shareholders, who report them on their personal tax returns. If the S corporation earns tax-exempt income, it retains its tax-exempt status when passed through to the shareholders.

Tax-Exempt Income at the Corporate Level Flows Through as Exempt