Final answer:
An S election for an S Corporation can be terminated under various conditions, but having 120 unrelated shareholders would not result in termination if the family shareholder counting rule is not exceeded.
Step-by-step explanation:
The subject of this question is related to the rules governing S Corporations in the United States and under what circumstances an S election can be terminated. When a corporation makes an S election, it chooses to be taxed under Subchapter S of the Internal Revenue Code, which allows the corporation to pass income directly to shareholders and avoid double taxation at the corporate level. However, there are specific conditions that must be met to maintain this status.
Having excess passive investment income for three consecutive years when a corporation has accumulated earnings and profits at the end of each taxable year can result in the termination of an S election if the passive investment income exceeds 25% of gross receipts. Issuing a second class of stock can also lead to termination, as S Corporations are only allowed to have one class of stock. Having a C corporation as a shareholder is also a violation of S Corporation rules, which require all shareholders to be individuals or certain types of trusts and estates.
However, having 120 unrelated shareholders would not necessarily result in an S election termination, as the current limit for the number of shareholders in an S Corporation is 100, but with a rule that allows family members to be counted as a single shareholder. Therefore, it is conceivable that an S Corporation could have many unrelated shareholders without violating this rule.
In conclusion, the answer to which of the following would not result in an S election termination is c. Having 120 unrelated shareholders, provided the family shareholder counting rule is not exceeded.