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The filing of the bankruptcy petition had no impact on V&M
Management’s qualification as a “small business corporation”
under section 1361(b). Petitioner was the only shareholder of
V&M Management during the year in issue and remained the only
shareholder through 1999.
Neither party cites any previous court opinions that have
decided whether or not an S corporation’s status is terminated by
virtue of filing a chapter 11 petition in bankruptcy. This
appears to be an issue of first impression.
The issue of whether the filing of a bankruptcy petition
causes the termination of an S corporation’s status was addressed
in In re Stadler Associates, Inc., 186 Bankr. 762 (Bankr. S.D.
Fla. 1995). In that case, the sole shareholder of the debtor
corporation contended that the filing of a bankruptcy petition
terminates S corporation status since the shareholder lost
control of the debtor. Disagreeing, the bankruptcy court held
that the filing of a petition in bankruptcy does not cause the
corporation to cease to be a “small business corporation” or
otherwise terminate the S corporation status. The bankruptcy
court held that “rules of statutory construction prohibit this
Court from adding a fourth method of terminating an S corporation
election where the Internal Revenue Code clearly sets forth the
aforementioned three methods”. Id. at 764. We agree.
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