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audit and litigation procedures generally are not applicable to a
“small S corporation”, defined as an S corporation with five or
fewer shareholders each of whom is a natural person or an
estate.3 On the other hand, the regulations permit small S
corporations to elect into the unified audit and litigation
procedures. Specifically, section 301.6241-1T(c)(2)(v),
Temporary Proced. & Admin. Regs., 52 Fed. Reg. 3003 (Jan. 30,
1987), provides:
(v) Election to have subchapter D of Chapter 63
Apply–-(A) In general. Notwithstanding paragraph
(c)(2)(ii) of this section, a small S corporation may
elect to have the provisions of subchapter D of chapter
63 of the Code apply with respect to that corporation.
(B) Method of election. A small S corporation
shall make the election described in paragraph
(c)(2)(v)(A) of this section for a taxable year of the
corporation by attaching a statement to the corporate
return for the first taxable year for which the
election is to be effective. The statement shall be
identified as an election under section 301.6241-
1T(c)(2)(v)(A), shall be signed by all persons who were
shareholders of that corporation at any time during the
corporate taxable year to which the return relates, and
shall be filed at the time (determined with regard to
any extensions of time for filing) and place prescribed
for filing the corporate return.
(C) Years covered by election. The election shall
be effective for the taxable year of the corporation to
which the return relates and all subsequent taxable
3 This regulation is effective with respect to S
corporation tax returns due on or after Jan. 30, 1987. See sec.
301.6241-1T(c)(2)(i), Temporary Proced. & Admin. Regs., 52 Fed.
Reg. 3003 (Jan. 30, 1987)
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