Tax Return Compliance and Due Diligence Considerations for S Corporations

The validity of a corporation’s S election is a primary consideration with respect to federal and state tax return compliance and due diligence efforts. For an S election to be valid, a corporation must satisfy strict eligibility requirements. Among these requirements, a corporation must (1) have no more than 100 shareholders, (2) have only permissible shareholders, and (3) have only one class of stock. Businesses operating as an S corporation should make sure they are familiar with these requirements in order to avoid an inadvertent termination of their S election.