Does Bankruptcy Terminate S Corp Status?

By Reichert, Charles J. | Journal of Accountancy, April 2005 | Go to article overview

Does Bankruptcy Terminate S Corp Status?


Reichert, Charles J., Journal of Accountancy


A business that elects to be an S corporation continues to be taxed as such until the election is terminated. It can be terminated in any of three ways: (1) The shareholders revoke the election, (2) the corporation no longer satisfies the eligibility requirements or (3) the corporation has too much passive income during the three previous tax years.

Alphonse Mourad was the sole shareholder of V&M Management, an S corporation that owned and operated a 275-unit apartment complex. In 1996 V&M petitioned for reorganization under chapter 11 of the Bankruptcy Code. To administer the reorganization, the bankruptcy court appointed an independent trustee who, in 1997, sold the apartment complex. The sale resulted in a gain of $2.l million, which was reported on V&M's 1997 form 1120S and Mourad's 1997 schedule K-1. Mourad did not file a tax return for 1997, the IRS issued him a notice of deficiency for that year and he, in turn, petitioned the Tax Court for relief.

Mourad argued the gain should have been reported by V&M, not by him, since V&M's filing for bankruptcy had terminated its status as an S corporation. The Tax Court disagreed (see Mourad v. Commissioner, 121 TC no. 1). The Tax Court held that a bankruptcy proceeding conducted under chapter 11 did not end S corporation status. Its finding was similar to that in an earlier case, In re Stadler Associates, Inc, 186 Bankr. 762, in which a bankruptcy court decided a petition under chapter 7 of the bankruptcy laws had not terminated S corporation status. In Stadler the court said that, if it permitted a bankruptcy to end S corporation status, it would be adding a fourth way or S corporation termination not specified in the tax code.

Mourad also argued it was unfair to tax him on the income of the property during the bankruptcy proceeding since he had received no benefit from it during that time. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Does Bankruptcy Terminate S Corp Status?
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.