Question

Which statement is incorrect with respect to an S shareholder's consent?

1) A consent must be in writing.
2) An S election requires a consent from all of the S corporation's shareholders.
3) Both husband and wife must consent if one owns the stock as community property.
4) None of these statements are incorrect.

Answer 1

The incorrect statement about an S shareholder's consent pertains to the requirement for both husband and wife to consent when one owns the stock as community property, as this is subject to state law, though generally both consents are required by IRS regulations.

Step-by-step explanation:

The statement that is incorrect with respect to an S shareholder's consent is: 3) Both husband and wife must consent if one owns the stock as community property. This statement should be clarified. While it's true that for federal tax purposes, the IRS considers the consent of both spouses necessary when one spouse owns the stock as community property, state law may affect this requirement.

Therefore, it depends on the state law that applies to the community property of the spouses. But generally, for an S election to be effective, the consent of all shareholders must be obtained and done so in writing.