Business income allocations from an S corporation to its shareholders are potentially subject to the 3.8 percent net investment income tax if the shareholders are passive investors in the S corporation.

Question

Quizplus · Accepted Answer

This is true. Passive investors in an S corporation are subject to the 3.8 percent net investment income tax on their allocated business income. Active shareholders who materially participate in the S corporation's business are not subject to this tax.

Business Income Allocations from an S Corporation to Its Shareholders