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Special Rules for Deducting Unused S Corporation Losses and Claiming Nontaxable Distributions

Measuring PTTP Under Treas. Reg. 1.1377-2, Increasing Stock Basis During PTTP, Treatment of Post-Termination Dividends

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Thursday, November 21, 2019

Recorded event now available


This course will provide tax advisers and compliance professionals with a thorough exploration of the risks and opportunities of deducting unused S corporation accrued losses in the "post-termination transition period" (whether due to revocation of S election, winding down of the business, or a disqualifying event). The panelist will detail how the 2017 tax reform law changed the treatment of carryforward S corp disallowed loss amounts, strategies to maximize the tax advantages of making an S to C corp election and the Proposed Regulations issued November 2019 covering post-termination transition period distributions by eligible terminated S Corporations (ETSCs).

Description

Along with several provisions that adversely impact S corps, tax reform's permanent reduction in C corp income tax rates is leading many S corps to evaluate their entity choice and explore whether converting to C corp status will provide more tax benefits. Tax advisers must have a solid grasp of whether, when, and how to make an S corp revocation election to avoid costly tax consequences.

The law makes several changes to S corp income treatment that negatively affect some companies and their shareholders. Most notably, Section 199A's 20% pass-through deduction does not apply to specific trades or businesses. Some S corps may benefit from spinning off certain operations into C corps while retaining the S corp election for others.

The law also contains provisions that in many cases will allow shareholders of "eligible terminated S corporations" to treat dividends paid during the "post-termination transition period" (PTTP) as coming from the corporation's accumulated adjustment account or E&P more favorably than a typical dividend distribution from an operating C corporation. These distributions are tax-free to the extent of the shareholder's basis in the S corp stock.

Listen as Professor Robert W. Jamison, CPA, Professor Emeritus of Accounting at Indiana University, provides thorough and practical guidance to help advisers determine whether, when, and how to make a tax-efficient entity change from S corporation status to take advantage of the new tax reform law provisions.

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Outline

  1. Prior treatment of unused S corp losses carried forward at the termination of S election or company operations
  2. Relief guidance
  3. Eligible termination events
  4. Measuring PTTP
  5. Treatment of losses suspended due to Section 465 at-risk limitations
  6. Increasing basis during PTTP
  7. Proposed Regulations on distributions made after S corp termination

Benefits

The panelist will discuss these and other important topics:

  • The standards and events listed in Treas. Reg. 1.1377-2 for measuring an S corporation's PTTP
  • Fixing carryforward losses potentially eligible to be freed-up at the beginning date of the PTTP
  • How S corp shareholders may increase their stock basis during the PTTP to free-up previously disallowed losses
  • Tax treatment of distributions made during PTTP

Faculty

Jamison, Robert
Professor Robert W. Jamison, CPA

Professor Emeritus of Accounting
Indiana University

Mr. Jamison is Professor Emeritus of Accounting at Indiana University, Purdue University, Indianapolis (IUPUI). His...  |  Read More