Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax

An S corp has four shareholders. One shareholder purchased

Customer Question
their stock in the company...
An S corp has four shareholders. One shareholder purchased their stock in the company and paid for the stock with a promissory note, payable to the company; the note is secured by a pledge of the company stock. The shareholder is in default. The pledge agreement allows the secured party (the company) to vote the shares and receive all distributions allocable to those shares while the note is in default. If the company exercises that right and keeps distributions otherwise payable to this shareholder--does the company blow its S-corp election?
Submitted: 5 years ago.Category: Tax
Show More
Show Less
Ask Your Own Tax Question
Answered in 15 minutes by:
3/1/2012
Tax Professional: Lev, Tax Advisor replied 5 years ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,619
Experience: Taxes, Immigration, Labor Relations
Verified

Hi and welcome to Just Answer!

Yes - that will violate the requirement to have only one class of shares.

The pledge agreement that allows the secured party (the company) to vote - creates a second class of shares and may not be done without approval of all shareholders - however with such approval - it will disqualify S-corporation - and it will be automatically treated as C-corporation.

 

Ask Your Own Tax Question
Customer reply replied 5 years ago
Relist: Inaccurate answer.
Tax Professional: Lev, Tax Advisor replied 5 years ago
Can you state what exactly is your concern?
Ask Your Own Tax Question
Customer reply replied 5 years ago
Your explanation stated that, in essence, unequal voting rights among S corp shareholders blows the S corp election. It doesn't. Voting rights are irrelevant to S corp elections. Only the right to distributions/dividends must be equal. The question is whether assigning one's right to distributions to the company paying the distributions blows the election.
Ask Lev Your Own Question
Lev
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,619
30,619 Satisfied Customers
Experience: Taxes, Immigration, Labor Relations

Lev is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,300 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,338 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

Robin D.

Robin D.

Senior Tax Advisor 4

13,980 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,651 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

R. Klein, EA

R. Klein, EA

Enrolled Agent

1,839 satisfied customers

Over 20 Years experience

< Previous | Next >

Related Tax Questions
Ied dividend and capital gains worksheet no longer
ied dividend and capital gains worksheet no longer available … read more
Carter McBride
Carter McBride
LLM
227 satisfied customers
An S Corporation & its 2 shareholders are selling the assets
An S Corporation & its 2 shareholders are selling the assets of the Corporation. The Corporation provides corporate credit card processing services and its primary assets are the contracts with its cu… read more
Carter McBride
Carter McBride
LLM
227 satisfied customers
100% S Corp shareholder distributed a vehicle to himself.
100% S Corp shareholder distributed a vehicle to himself. Original cost 59711, A/D 54073, note 48313. He used the vehicle as a trade in for a personal vehicle. I would like 1120 S and k-1 assistance.… read more
taxmanrog
taxmanrog
Master\u0027s Degree
767 satisfied customers
I have a shareholders distribution based on business sale -
I have a shareholders distribution based on business sale - I don't know where to report on my taxes … read more
Lev
Lev
Tax Advisor
30,619 satisfied customers
2% shareholder insurance - If a 100% Shareholder is on
2% shareholder insurance - If a 100% Shareholder is on payroll and he has an insurance policy but spouse is on Medicare, is the amount of the insurance premiums of owner plus the Medicare that was wit… read more
Carter McBride
Carter McBride
LLM
227 satisfied customers
Geetings- RE: Equitable distribution and distributive award.
Geetings-RE: Equitable distribution and distributive award.E.D. Judgment: marital home is over-valued. . Broker uses the courts over-valued sales price. . 5 five months later broker recommends $75K sa… read more
Patrick Mullis
Patrick Mullis
Masters
17 satisfied customers
Are the accumulated dividends on a life insurance policy
Are the accumulated dividends on a life insurance policy usually apart of the gross value listed on schedule D of form 706 or should it be reported somewhere else?… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Looking for a 2015 and 2016 shareholders basis computation
looking for a 2015 and 2016 shareholders basis computation form … read more
abci168
abci168
Principal
27 satisfied customers
On Social Security, received dividend on traditional IRA
On Social Security, received dividend on traditional IRA want to withdrawn funds from Roth IRA … read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,061 satisfied customers
S-Corp Tax Question. Non-taxable distributions from S-Corp
non-taxable distributions from S-Corp to 100% shareholder. reducing basis in cost basis of stock, avoiding income tax to s-corp shareholder … read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,061 satisfied customers
Fred and Wilma Flintstone are the sole shareholders of
Fred and Wilma Flintstone are the sole shareholders of Bedrock Rock (BR), a business organized as a C corporation that provides natural stone and rock countertops. In addition, they co-own Cave Dwelli… read more
Carter McBride
Carter McBride
LLM
227 satisfied customers
When qualified dividends and short-term gains are reinvested
when qualified dividends and short-term gains are reinvested in a mutual fund, are they included in the long-term gain? For example, investor buys 100 shares of mutual fund A in 2010 for $1 per share,… read more
taxmanrog
taxmanrog
Master\u0027s Degree
767 satisfied customers
What does "Distributions Other Than Dividend Distributions"
what does "Distributions Other Than Dividend Distributions" mean on a corporate tax return? Was the amount listed actually giving to the shareholder? … read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,061 satisfied customers
Does a U.S. 1120 with a sole shareholder be required to file
Does a U.S. 1120 with a sole shareholder be required to file a F-5472 if the shareholder is filing under tie-breaker rules . The shareholder is filing F-5471 with regard to CFCs and F-114 as he is con… read more
taxmanrog
taxmanrog
Master\u0027s Degree
767 satisfied customers
If a shareholder of an S-Corp, 100% shareholder, who did not
If a shareholder of an S-Corp, 100% shareholder, who did not pay himself a salary in 2016 and owes in excess of 48K when the K-1 comes over to personal tax and all the shareholder's monies are in the … read more
PDtax
PDtax
Owner
Master\u0027s Degree
1 satisfied customers
S Corporation shareholders to surrender stock to S
S Corporation shareholders to surrender stock to S corporation (all with basis) on 1-1-18 which will terminate S election and now stock re-issued to 4 operating companies as a C Corporation. Is there … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Same question on the taxation of interest and dividends (on
Same question on the taxation of interest and dividends (on mutual funds) earned inside a disclaimed portion trust ... disclaimer trust . The original owner of a trust passed and the spouse declined a… read more
Lev
Lev
Tax Advisor
30,619 satisfied customers
I have an S corp that has 2 shareholders. 1 shareholder is
I have an S corp that has 2 shareholders. 1 shareholder is selling out to the other shareholder. I understand how to record the sellers side as far as distributions and taxable dividend for the amount… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x