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the State of Massachusetts. Neither V&M Management nor
petitioner ever attached Form 8609 to their tax returns.
Petitioner never claimed low-income housing credits on his
personal returns for the years during which V&M Management owned
Mandela Apartments.
OPINION
A. Income Imputed From the S Corporation
Petitioner does not question respondent’s calculation of
income. Rather, petitioner argues that he should not be treated
as a shareholder of an S corporation after V&M Management filed a
petition with the bankruptcy court.
One of the benefits of S corporation tax status is that
income earned by the entity escapes corporate-level taxation.
See sec. 1363.7 Thus, an S corporation’s income passes through
the entity and is, generally, taxed only at the shareholder level
on a pro rata basis. See secs. 1363, 1366.
An election to be an S corporation continues until
terminated. See sec. 1362(d). An S corporation election
terminates in one of three ways: (1) Revocation by the
shareholder(s); (2) the entity ceases to be a “small business
corporation”; or (3) the entity’s passive income exceeds 25
percent of its gross receipts for the previous 3 consecutive
7Except as indicated to the contrary, all section references
are to the Internal Revenue Code for the year in issue.
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