Subchapter S Corporations (Investor Level Statute Control)

There is no statute on an S corporation return for pass-through items to the shareholders. The statute of limitation is determined at the shareholder level for each shareholder. Therefore, the statute for each shareholder is extended by following the consent procedures for the individual or entity shareholder returns.

Where there is potential for tax or penalty on the S corporation itself, the statute must be protected at the S corporation level. Tax or penalty due at the S corporation level can occur in the following situations:

Tax imposed on S corporation built-in gains — IRC 1374, Tax Imposed on Certain Built-In Gains.

Tax imposed on S corporation passive investment income — IRC 1375, Tax Imposed When Passive Investment Income of Corporation Having Accumulated Earnings and Profits Exceeds 25 Percent of Gross Receipts.

If the corporation has filed as an S corporation and it is later determined that it does not qualify as an S corporation, it will be converted to a C corporation. The statute of the converted C corporation begins with the filing of the S corporation return. Therefore, if there is a potential that the S corporation will be converted to a C corporation, the statute must be protected.

Penalty imposed on the S Corporation for late filing or failure to disclose a "listed" transaction.

To extend the statute in situations described in paragraph (2) above, follow the consent procedures for C corporations.

If TEFRA Subchapter S items are converted to non-Subchapter S items under IRC 6231(b), Timing of Notices. IRC 6229(f), Special Rules, provides that the statute for assessment of tax on the shareholder's return for these items shall not expire before the date that is one year from the date of conversion. This one-year period can be extended by consent.