Question

A, B and C, all individuals, own 30%, 30% and 40%, respectively, of X Corp. A, B and C are all U.S. citizens. X is a Delaware corporation. X elects to file S Corp. status on February 1, 2020 and states that the election is effective January 1, 2020. (a) A, B and C consent to this election. Is this election valid?
(b) Suppose instead that only A and B consent to the election. Would this change your answer?
(c) Same as (a) except that C's shares are voting preferred. Would this change your answer?
(d) Assume the same facts as (a). In addition, assume that in 2020 X has income of 36,500. On February 1, 2020, A sells his shares to N, a nonresident alien. What consequences from these additional facts?
(e) Same as (d) except that A sells his shares to P Corp. Would this change your answer?
(f) Same as (e) except that P Corp. acquires A's shares because A defaulted on a loan from P. Two weeks later, the default is cured and the shares are returned to A. Would this change your answer?
(g) Assume the same facts as (a). Assume further that on February 15, 2020, C elects to terminate the S status. A and B do not consent to the termination. What result?
(h) Same as (g) except that A and B do consent to the termination of S status but C does not consent. Would this change your answer?

Answer 1

Answer A

A and B owns 30% each and C owns a 40% share of x corp. As they are the partners and each having its voting rights. So, all three partners are having their consent then the election will be considered valid.

Answer B

No, it will not change my answer. The election still valid because partner A and B hold a majority of the voting right and they both have same consent.

Answer C

Yes, my answer will change because partner C just hold 40% shares which are less than the majority. At least all 2 partners should consent on the eletion. So, election is considered to be valid.