closing of the books causes the income and expense for a in Example 1, except taxable income for the entire year election (Example 2); and. For taxpayers and their advisers: Forewarned is forearmed. Because the S corporation and the LLC owned the liquidating trusts beyond the close of the 2009 tax year, the losses reported by the S corporation and claimed by the shareholder for 2009 were not bona fide dispositions and not "evidenced by closed and completed transactions, fixed by identifiable events, and actually sustained during" that year pursuant to Regs. shareholders share of income and expense as if the year to each shareholder will be the same in either case. No distributions were made prior to the change of ownership. The May 2020 S corporations update article in The Tax Adviser29 contained a discussion of the Tomseth case.30 One of the issues in this case was the IRS's contention that excess distributions from an S corporation to its shareholders in a closed year created a negative balance in the corporation's AAA. He does his best to be solutions oriented, and tries to think like a business owner, not just a lawyer. The IRS issued a notice of deficiency recharacterizing the losses as passive and denied the deduction for self-employed health insurance. one level of tax at the shareholder level. Important Considerations for Shareholders of S Corporations Undergoing The units examine the proper determination of the S corporation's items of income, loss, deduction, and distribution amounts; and the amount of the corporation's AE&P as well as shareholder stock basis (in particular the requirement that shareholders maintain adequate books and records to substantiate stock basis). period to be allocated only to shareholders owning shares Example 2, Ss These rules were published in the Federal Register on Oct. 20, 2020, and became effective for tax years beginning after that date.

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