S Corp election

[Unregistered]

At the corporate year end-7/31/06 there are two stockholders. The stock of one is being purchased by the other. The remaining stockholder will elect to be a S Corp with a 12/31 year end. If the stockholder is not brought out until 8/10/06 does that mean the 12/31/06 return will include a proration of income by days (assume no election to do otherwise) and some responsiblity to distribute the money/income????

I do not know how I became unregistered, but that is probably appropriate...

[Bees Knees]

yes

If you are going to elect S status, it may be easier to make the election for 2007 and have the corporation switch its tax year end while it is still a C corporation. That way you are under no obligation to share any income or distributions with the selling shareholder. I assume the sales price would already reflect the timing difference, so why complicate it further with the strict tax rules that would apply if it were an S corporation. You also have the issue of the selling shareholder having to sign the consent for the S status if the switch occurred before the stock sale.

[veritas]

How about built in gains? Is your client cash based or accrual?