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A. S Corporation Pro Rata Distributive Share
Generally, a shareholder of an S corporation must include in
gross income his or her pro rata share of the corporation’s
income, loss, deduction, or credit. Sec. 1366(a), (c); see also
sec. 61(a). Consequently, we must decide whether petitioner was
a shareholder of Union Machine during 2000 such that he is
required to report his pro rata share of Union Machine’s interest
and ordinary income.
Generally, a shareholder of a corporation remains a
shareholder until he or she is validly divested of his or her
shares despite any announcement of resignation or abandonment of
that status. 18A Am. Jur. 2d, Corporations, secs. 772, 778
(2004); see Owyhee Grazing Association, Inc. v. Field, 637 F.2d
694 (9th Cir. 1981). Under the Washington Business Corporation
Act, Wash. Rev. Code Ann. tit. 23B (West 2001), a shareholder may
be validly divested of his or her shares by transferring his or
her shares in accordance with the articles of incorporation, the
bylaws, or a restriction agreement,12 Wash. Rev. Code Ann. sec.
23B.06.270 (West 2001), or, if the shareholder dissents from a
corporate action, the dissenting shareholder may obtain payment
of the fair value of his or her shares, Wash. Rev. Code Ann. sec.
23B.13.020 (West 2001). Furthermore, the corporation may divest
12 We note that no such corporate documents were introduced
into evidence.
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