Question
Why does an S corporation avoid double taxation while still giving owners limited liability?
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Answer
Income passes through to shareholders, but the entity remains a corporation.
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Question
Why can an S corporation with accumulated C corporation E&P pay a taxable dividend?
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Answer
Distributions follow AAA, then accumulated E&P, which is taxable dividend income.
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Question
Why can't a C corporation be an S corporation shareholder?
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Answer
Only individuals, estates, and certain trusts may own S corp stock.
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Question
Why do tax-exempt income items increase stock basis but not the AAA?
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Answer
They increase shareholder basis, but AAA excludes tax-exempt income.
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