S corp change in ownership

[imjulier]

Anyone out there know the impact of changing the ownership percentage of S-corp at mid-year? I believe this requires a short year tax return for the first half of the year (with ownership allocation in place) and then another short year tax return for the rest of the year with new ownership allocation. Am I right?

Thanks,

Julie

[JohnH]

You have two choices:

1) The default is to allocate income or loss based on the number of days each shareholder owned their stock times the percentage of ownership.

2) However, if all shareholders agree, you can make an election to treat the corporation as having two short years. Unless there's a significant difference in the amounts allcoated to the shareholders, it isn't worth the time & trouble to use the election.

[OldJack]

It does not require and should not result in 2 separate 1120S tax returns since it is the same S-corp. The effect and allocation of tax attributes are only on the individual shareholders 1120S-K1.

[imjulier]

Thanks guys for your responses. Obviously, allocating income on the K-1s makes sense and is a lot simpler.

Julie