S Corporation Reform Act of 1993

TABLE OF CONTENTS:

Title I: Eligible Shareholders of S Corporation

Subtitle A: Number of Shareholders

Subtitle B: Persons Allowed as Shareholders

Subtitle C: Other Provisions

Title II: Qualification and Eligibility Requirements

for S Corporations

Subtitle A: One Class of Stock

Subtitle B: Elections and Terminations

Subtitle C: Other Provisions

Title III: Taxation of S Corporation Shareholders

Title IV: Effective Date

S Corporation Reform Act of 1993 - Title I: Eligible Shareholders of S Corporation - Subtitle A: Number of Shareholders - Amends the Internal Revenue Code to increase from 35 to 50 the maximum number of shareholders of an S corporation (small business corporation). Allows members of a family to be treated as one shareholder.

Subtitle B: Persons Allowed as Shareholders - Allows the following entities to be shareholders of S corporations: (1) certain tax-exempt organizations; (2) financial institutions that do not use the reserve method of accounting for bad debts; (3) nonresident aliens; and (4) certain small business trusts.

Subtitle C: Other Provisions - Extends the post-death qualification for certain trusts to be permitted as shareholders from 60 days to two years.

Title II: Qualification and Eligibility Requirements for S Corporation - Subtitle A: Once Class of Stock- Allows an S corporation to issue qualified preferred stock.

Permits financial institutions to hold safe harbor debt.

Subtitle B: Elections and Terminations - Revises the rules on inadvertent terminations by certain trusts of the election to be an S corporation. Authorizes the Secretary of the Treasury to treat certain late elections as timely and to provide an automatic waiver procedure for certain inadvertent terminations.

Expands the post-termination transition period until 120 days after a determination is made that the election had terminated in a prior year.

Repeals excessive passive investment income as a termination event.

Increases the tax imposed on such excessive income.

Subtitle C: Other Provisions - Permits an S corporation to own more than 80 percent of another corporation's stock.

Repeals the requirement that partnership rules apply for fringe benefit purposes (making C corporation rules applicable).

Provides for the treatment of distributions during loss years.

Provides a consent dividend for S corporation elections to by-pass amounts in the accumulated adjustments account when making distributions.

Eliminates the need to keep records of certain generally small amounts of earnings arising before 1983.

Allows S corporations to make charitable contributions of inventory and scientific property.

Title III: Taxation of S Corporation Shareholders - Treats losses on liquidations of S corporations as ordinary to the extent the loss created by ordinary income pass-through triggered the liquidation.

Title IV: Effective Date - Makes this Act effective after December 31, 1993.