Final answer:
A corporation may not alternate between S corporation and C corporation status each year. The choice typically remains in effect unless the corporation chooses to change its status, which usually requires IRS approval.
Step-by-step explanation:
A corporation may not alternate between S corporation and C corporation status each year, depending on which results in more tax savings. This statement is False. When a corporation is formed, it must choose whether to be taxed as an S corporation or a C corporation. Once this choice is made, it typically remains in effect unless the corporation chooses to change its status, which usually requires IRS approval.
An S corporation is a special type of corporation that allows for pass-through taxation, meaning that the corporation itself does not pay income taxes. Instead, income and losses are passed through to the shareholders, who report them on their individual tax returns. This can result in tax savings for certain owners.
On the other hand, a C corporation is subject to corporate income taxes at the entity level. This means that the corporation itself pays taxes on its profits, and then any distributions to shareholders are taxed again at the individual level. Depending on the specific circumstances, one type of corporation may result in more tax savings than the other.