Final answer:
Eligible shareholders of an S corporation are individuals, certain trusts, and estates, but not partnerships, non-U.S. corporations, or nonqualifying trusts. The correct option for the question would be e. None of these.
Step-by-step explanation:
The question pertains to the eligibility of shareholders in an S corporation. When determining eligible shareholders for an S corporation, it\u2019s important to understand that there are specific restrictions laid out by tax laws. S corporations can only have certain types of shareholders. According to the Internal Revenue Service (IRS), eligible shareholders of an S corporation include individuals, certain trusts, and estates. However, partnerships, corporations, and non-resident aliens cannot be shareholders. To address the choices provided:
- A Roth IRA cannot be an S corporation shareholder because IRAs are considered trusts, and only certain types of trusts qualify.
- A partnership cannot be a shareholder, as S corporation shareholders must be individuals, certain trusts, or estates, not entities that are themselves partnerships.
- A non-U.S. corporation is ineligible because shareholders must be U.S. citizens or residents.
- A nonqualifying trust is not an eligible shareholder unless it specifically meets the requirements of certain trusts allowed by the IRS.
Therefore, the correct option in the final answer is e. None of these.
When a company decides to incorporate and potentially become an S corporation, it fundamentally changes its structure. Unlike in a sole proprietorship or partnership, investors in corporations, through the purchase of stocks and bonds, are protected against personal liability beyond their investment amount. S corporations, in particular, have the added benefit of passing corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes.