S Corporation Status: Which of the following shareholders would cause a corporation to be INELIGIBLE to make an S election?

Answer options:

A bankruptcy estate.

A grantor trust owned by a U.S. citizen.

A partnership.

A resident alien.

How to approach this question

Recall the list of eligible S Corp shareholders: Individuals (US/Resident), Estates, Certain Trusts. NO Corps, NO Partnerships.

Full Answer

C.A partnership.✓ Correct

Eligible S corporation shareholders include individuals (U.S. citizens or resident aliens), estates, and certain trusts (grantor, voting, QSST, ESBT). Partnerships and C corporations are NOT eligible shareholders. Non-resident aliens are also ineligible.

Common mistakes

Thinking partnerships can own S Corps (they can own C Corps, but not S Corps).

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