Question

Which statement is incorrect with respect to the number-of-shareholders test in filing an S election?

1) Husband Jaime and the estate of wife Maria count as one shareholder.
2) Grandmother Adela and granddaughter Maria count as one shareholder.
3) Husband Jaime and ex-wife Isabel count as one shareholder.
4) Husband Jaime and wife Maria count as one shareholder.
5) None of these statements are incorrect.

Answer 1

The Correct option is 3). Ex-spouses are not counted as a single shareholder for the purposes of an S corporation election; as such, the statement that Husband Jaime and ex-wife Isabel count as one shareholder is incorrect.

Step-by-step explanation:

The question asks which statement is incorrect regarding the number-of-shareholders test for an S corporation election. According to IRS rules, family members can be treated as a single shareholder under certain conditions. The incorrect statement in this context is number 3 (Husband Jaime and ex-wife Isabel count as one shareholder), as ex-spouses are not considered a single shareholder for the purposes of the S corporation shareholder limit.

A correct interpretation of the rules would be that a husband and wife are generally counted as a single shareholder. If Jaime and Maria were still married, they would count as one shareholder. However, once divorced, Jaime and Isabel would be considered separate shareholders. In the case of family lineal descendants like a grandmother and granddaughter, they can be considered as one shareholder under certain estate planning structures.