Davies Corporation is a calendar-year taxpayer that is owned equally by Vivian, Rob, Danny, and Doug Davies. At the close of business on May 31, Rob Davies sells his 25% stock interest to Paula Bryan. Which of the following statements about the S election is correct?
A)Paula must consent to the S election, otherwise the election terminates at the close of business on May 31.
B)A new S election form must be filed by June 30 of the same year, with all shareholders consenting to the election. If a new S election is not filed, the election terminates on June 30 of that year.
C)Paula has 30 days to terminate the S election, otherwise the election remains in place for the entire year and all subsequent years.
D)None of the above statements are correct.

Question

Quizplus · Accepted Answer

The S corporation status is not automatically terminated upon the sale of stock to a new shareholder. The new shareholder, Paula, does not need to consent to the S election for it to remain in effect, nor does a new S election need to be filed by June 30. The S election remains in place unless specific actions are taken to terminate it, which are not solely dependent on the consent of a new shareholder within a 30-day period.

Davies Corporation Is a Calendar-Year Taxpayer That Is Owned Equally