- 16 - incorporator or director is required to own stock in the corporation. See, e.g., Roche’s Beach, Inc. v. Commissioner, 35 B.T.A. 1087 (1937); 2 Fletcher Cyclopedia of the Law of Private Corporations, secs. 297-306 (perm. ed., rev. vol. 1998).) Here, Dr. Sadanaga owns all the shares of petitioner’s stock, and there is no evidence that any shares were issued solely to qualify Dr. Sadanaga as a director or an incorporator. Rev. Rul. 71-86, supra, supports respondent’s position; it does not provide an exception for petitioner. Finally, petitioner argues that section 1372 prohibits a 2- percent shareholder of an S corporation from being treated as an employee of the S corporation. Section 1372, however, applies only to the provisions of subtitle A, income taxes, not subtitle C--in which Federal employment tax provisions are located. In Rev. Rul. 73-361, 1973-2 C.B. 331, an officer/stockholder of a small business corporation performing substantial services as an officer of the corporation was held to be an employee of the corporation for purposes of Federal employment taxes. Rev. Rul. 73-361, supra, states: Neither the election by the corporation as to the manner in which it will be taxed for Federal income tax purposes nor the consent thereto by the stockholder- officers has any effect in determining whether they are employees or whether payments made to them are “wages” for Federal employment tax purposes. In Rev. Rul. 74-44, 1974-1 C.B. 287, two sole shareholders of an electing small business corporation arranged to receivePage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Next
Last modified: May 25, 2011