Ronald L. DeVault - Page 10

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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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