Discussion:1368(e)(3) elect to distribute A&EP first

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Discussion Forum Index --> Tax Questions --> 1368(e)(3) elect to distribute A&EP first


JAD (talk|edits) said:

25 November 2008
The S corporation is going to distribute its accumulated earnings and profits. The Code and Regs require an election to be attached to the 2008 tax return. The shareholders must consent to this election.

I cannot find any instruction as to how to document shareholder consent. There is nothing like the filing of the 2553 to elect S status. Do I simply attach the election to the S corporation return stating that they consent?. This seems too easy.

Thank you!

Smktax (talk|edits) said:

25 November 2008
Create a statement that says in effect "The following are all of the shareholders of the S corporation, and each shareholder, by signing on the applicable line below, hereby consents to the election as provided in Code § 1368(e)(3) and Treas. Reg. § 1.______." And then have all of the shareholders sign the election and attach it to the tax return.

JAD (talk|edits) said:

25 November 2008
Thanks Smktax. Is this something that is a procedure in your office, or is there something from the IRS that requires this type of statement?

Thank you for your help.

JackDaniel (talk|edits) said:

25 November 2008
Don't believe that it is necessary to attach the signed consent to the return.

KatieJ (talk|edits) said:

26 November 2008
Instructions are in the regulations.

TR 1368-1(f)(5)(iii): Corporate statement regarding elections. A corporation makes an election for a taxable year under §1.1368-1(f) by attaching a statement to a timely filed (including extensions) original or amended return required to be filed under section 6037 for that taxable year. In the statement, the corporation must identify the election it is making under §1.1368-1(f) and must state that each shareholder consents to the election. In the case of elections for taxable years beginning before January 1, 2003, an officer of the corporation must sign under penalties of perjury the statement on behalf of the corporation. In the case of elections for taxable years beginning after December 31, 2002, the statement described in this paragraph (f)(5)(iii) shall be verified by signing the return. A statement of election to make a deemed dividend under §1.1368-1(f) must include the amount of the deemed dividend that is distributed to each shareholder.

Jdugancpa (talk|edits) said:

26 November 2008
Jessica, in Pro Series there is an Election worksheet that has check boxes to make various elections. By marking the "Election to Bypass AAA" it automatically generates an election for 1.1368-1(f). The statement includes a line for the S corp officer to sign as well as a line for each affected shareholder to sign. Because I am in a community property state (WA) I always list the s/h spouses in addition to the s/h's of record.

If you (or anyone else) can let me know if Lacerte has a similar election worksheet to do this, I would appreciate knowing. I am currently looking at Lacerte for next year and I do not see how it is done, although I do see in the Forms view a statement for General Elections, but I don't see how info actually gets onto that worksheet.

JackDaniel (talk|edits) said:

26 November 2008
Open Screen 38, then click on the "Misc Election" link.

JAD (talk|edits) said:

26 November 2008
Thank you all for your responses. I was aware of the instructions in the Regs but unsure re the consent required by the shareholders - the regs say that they must consent, but it seems too easy to simply attach a statement saying that they consent without evidence of their consent.

In Lacerte, the program generates a statement that simply says that everyone consents. It sounds like the Pro Series election statement is more conservative in requiring everyone's signatures. On the one hand, this is safer. On the other hand, the fact that it requires the officer to sign sounds like it is using an election statement format from earlier years, before the requirements were changed so that attaching the election to the signed return was effective.

Thank you all very much for your help.

ReadMyLips (talk|edits) said:

26 November 2008
This is pulled from PPCs 1120S Deskbook, Key Issue 21L:

copyrighted material removed: violation of terms of service

JAD (talk|edits) said:

13 December 2008
I've crabbed about Lacerte so many times...I thought I would document a thoughtful response. I sent them an email notifying them that they generate this election statement with the signature line, which is no longer required. The person who responded actually said that she "verified the issue" and "forwarded it to development".

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