Generally income is allocated to shareholders of S corporation on a "per-share-per-day basis". The allocation method does not change if a shareholder's ownership % changed during the year. For example, an S-Corp has 100 shares outstanding with income of $365,000 in year 1 (365 days). One of its 10% shareholders changed his holdings from 10% to 20% on July 1 of year 1. The shareholder's pro-rata share of income for year 1 is calculated as follows:

Therefore the individual shareholder is allocated a total income of $54,900 for year 1.

The provision of Sec. 351 that apply to C corporations on formation, also apply to S corporation whereby the transaction is tax free to the extent the shareholders receive 80% or more control in Corporation in exchange for cash or property contributed. However, when shareholders transfer properties that have liabilities attached to them, they must recognize gain to the extent that the liability assumed by the Corporation (liability relief) is greater than the basis of properties contributed.

Accordingly when the sole shareholder transferred property with a basis of $6,000 and liability of $12,000, the shareholder must recognize gain of $6,000.

S Corporation is a pass thru entity which passes income to shareholders proportionate to their holdings and tax is paid at the individual shareholder level. Each Shareholder's basis in S Corp. is computed as follows:

Paige's salary of $25,000 does not affect his basis separately. His salary is deducted from gross receipts to arrive at the net business income. Also, apart from the shareholder income from the S Corporation, Paige would report his salary as W2 income on his individual income tax return, Form 1040.

A C corporation can be converted to an S corporation, provided a valid S- election is made (Consent of 100% of shareholders and election is made within the 15th day of the third month of the tax year). One of the primary benefits of filing as S Corporation is the elimination of double taxation. S corporation no longer pays any taxes; all income, expenses and losses are passed through to the shareholders who pay tax at the individual level. Accordingly as given in choice (d), capital losses are passed through to the individual shareholders who can claim the loss on their tax return subject to $3,000 excess capital loss limitation against ordinary income on Form 1040.

An S corporation's shareholder basis must be computed as follows:

It is very important to follow the above order because losses from the S corporation cannot deduct a shareholder's basis (stock and debt basis) below zero.

As stated above losses from the S corporation cannot reduce stock holder basis below zero. Therefore even though the S Corp. had $2,000 in losses available for pass-thru, Stone can deduct only up to his remaining basis of $1,500 after the distributions. Suspended losses of $500 can be carried forward to future years until utilized.

The amount of S corporation’s loss that can be deducted on a shareholder’s tax return is limited to his/her “at risk” amount in respect of S corporation, which is calculated as net basis + direct loan by shareholder to the S Corporation. In other words, the adjusted basis of the shareholder taxpayer cannot be reduced below zero.

The taxpayer’s at risk amount = $25,000 [adjusted basis]+ $13,000 [original loan]-$3,000 [loan repaid] =$35,000.

Taxpayer’s share of loss in S corporation is $40,000; however, only $35,000 of it can be deducted on the taxpayer’s return which shall reduce the taxpayer basis at the end of the year to $0.

The requirements to qualify as an S Corporation are as follows: ( Mnemonic : 100 US individuals are common)

All shareholders must be US Citizens and Residents. Exception: Starting 2018, non-resident aliens who are potential current beneficiaries of an ESBT (Electing Small Business Trust) can become an indirect shareholder in S Corporation via the ESBT.

All shareholders must be individuals. Certain estates and trusts can also be shareholders such as an Electing Small Business Trust, Qualified Subchapter S Trust, Bankruptcy estate & exempt trusts

Charitable remainder unitrusts and charitable remainder annuity trust cannot qualify as electing small business Corporations. For the other types of trusts, who are eligible to be S Corp shareholders, all beneficiaries of the trust must be individuals or estates who are US citizens or residents (with the exception to ESBT as noted above).

The requirements to qualify as an S Corporation are as follows: ( Mnemonic : 100 US individuals are common)

Shareholders must be US citizens and residents. Exception: Starting 2018, non-resident aliens who are potential current beneficiaries of an ESBT (Electing Small Business Trust) can become an indirect shareholder in S Corporation via the ESBT.

All shareholders must be individuals. Certain estates and trusts can also be shareholders such as an Electing Small Business Trust, Qualified Subchapter S Trust, Bankruptcy estate & exempt trusts

An S Corporation can be terminated based on any one of the following conditions:

Voluntary termination - Requires shareholders holding a majority of the shares to make an election to terminate.

Termination due to ineligibility - S-Corp status will be revoked automatically if an event occurs that causes it to violate one of the following requirements:

c) All shareholders are either US citizens or residents (Exception: Non-residents can become shareholders of S Corp by being a potential current beneficiary of ESBT or Electing Small Business Trust. This is effective from Jan 1, 2018 as per TCJA)

In addition to the above, an S corporation is also terminated if the passive income test is failed for 3 consecutive years. According to this test if an S corporation with C Corporation AEP, has passive income of more than 25 percent of its gross receipts for 3 consecutive years, then it fails to be an S Corp and must terminate the S election. Passive investment income includes receipts from rents, royalties, dividends, interest, annuities and the gain from sales or exchanges of stock of securities.

The Tax Cuts and Jobs Act of 2017 (TCJA) now allows that portion of Electing Small Business Trusts (ESBTs) that owns S-Corporation stock is treated as a separate trust and the S-Corporation income allocated to the ESBT is taxed to the trust itself (rather than pass-through to the trust’s beneficiaries). Further, any charitable contribution deduction for the portion of ESBT holding S Corporation stock is determined under the rules applicable to individuals, rather than those applicable to trusts.

Post Termination Transition Period (PTPP) is the period that occurs after termination of S Corporation election of a domestic corporation. The taxability of distribution from a C corporation (after revocation) depends on the period of distribution i.e. during the PTPP and after the PTPP.

PTPP begins on the day of termination and ends on the later of (1) one year after the termination date, or (2) the due date for filing the final S Corporation tax return (including extensions).

Distributions during PTPP are tax-free as they are considered to be distributions from AAA (accumulated adjustment account) of the Erstwhile S Corporation. Distributions after end of PTPP are considered to be in proportion of the AAA (tax-free) and AEP( accumulated earnings and profits) of the C Corporation (taxable).

II. Reported as a separately stated item and reported on Schedule K.

S corporations do not pay income taxes but are required to file annual information returns reporting income and the allocation of that income to the various shareholders. As the items will be reported on the tax returns of the shareholders, the shareholders must segregate items that have special treatment on their individual tax returns. For this purpose, the S corporation prepares a Schedule K that summarizes ordinary income and separately lists all items that are not ordinary. Additionally, a Schedule K-1 is prepared for each shareholder showing that shareholder’s allocated share of all of the items on the Schedule K. In other words, separately stated items [Schedule K] are those amounts that can hit a limit on the shareholders’ individual tax return.
Charitable contribution deductibility is dependent on the status of the taxpayer i.e. the allow ability of charitable deduction is different for an individual tax payer as compared to a trust as compared to a C corporation. Thus, the charitable contribution is a separately stated item.

I. Accumulated earnings of Danny, as per section 965, are not taxable to John as he holds less than 10% in Creo Corporation.

II. Accumulated earnings of Danny, as per section 965, are taxable to John as pass through from Creo Corporation.

III. John can defer the net tax liability of section 965 till a tax year in which a triggering even occurs.

The Tax Cuts and Jobs Act of 2017 (TCJA) has introduced a one-time transition tax on a U.S. shareholder’s (owns 10% or more stake) pro-rata share of the foreign corporation’s accumulated post-1986 deferred foreign income. The prior law allowed deferral of US tax on foreign active business income earned by foreign corporate subsidiaries until repatriated, leading to the accumulation of untaxed foreign earnings. For S-Corporations and partnerships, this transition tax is a pass-through to the shareholders / partners. Special election rules are available for S corporation shareholders wherein each S corporation shareholder can elect to defer the payment of the net tax liability until the tax year in which any of the following triggering event occurs:

S corporation liquidates or sells substantially all of its assets, ceases its business, ceases to exist or any similar circumstance.

The shareholder transfers shares in the S corporation; transfers of less than all of the stock in an S corporation are a triggering event only with respect to the transferred shares.

10% stake is relevant for applicability of transition tax to the S corporation and a member holding less than 10% in the S corporation will also be liable for the transition tax applicable to the S corporation.

S corporations do not pay income taxes, but are required to file annual information returns reporting income and the allocation of that income to the various shareholders. As the items will be reported on the tax returns of the shareholders, the shareholders must segregate items that have special treatment on their individual tax returns. For this purpose, the S corporation prepares a Schedule K that summarizes ordinary income and separately lists all items that are not ordinary. Additionally, a Schedule K-1 is prepared for each shareholder showing that shareholder’s allocated share of all of the items on the Schedule K. In other words, separately stated items [Schedule K] are those amounts that can hit a limit on the shareholders’ individual tax return.

The Tax Cuts and Jobs Act of 2017 (TCJA) has introduced some changes in case of elective small business trusts, which are allowed to be members of S corporations. As per TCJA, the portion of an ESBT that owns S corporation stock is treated as a separate trust and the S corporation income allocated to the ESBT is taxed to the trust itself (rather than pass-thru to the trust’s beneficiaries).

Further, any charitable contribution deduction for the portion of ESBT holding S corporation stock is determined under the rules applicable to individuals, rather than those applicable to trusts.

Accumulated adjustment account (AAA) represents the undistributed net income items for S corporation. These have already been taxed to the shareholders.

Earnings and profits (E&P) are the profits of the C corporation. These are not taxed until they are distributed as dividend.

AAA is the S corporation income that has already been taxed to shareholders but not yet distributed so AAA distribution is non-taxable.

Accumulated earnings and profits (AEP) is the earning and profits (E&P) accumulated in C corporation years that have never been taxed to shareholders, so AEP distribution is taxable. As S corporations are only subject to a single level of tax, distributions from S corporations are generally not subject to tax for shareholders.

Distributions to the extent of AAA are non-taxable and reduce AAA and shareholder’s basis.

Distributions to the extent of AEP (and in excess of AAA) are treated as taxable dividend income (no effect on shareholder’s basis).

Distributions to the extent of remaining stock basis (and in excess of AAA and AEP), is treated as non-taxable return of capital.

Distributions in excess of stock basis are treated as taxable capital gain distributions.

Any distribution from AAA will not be taxed as it has already been taxed to the shareholders. However, a distribution from AEP is taxed as it is only on distribution.

The internal revenue code provides that when a S corporation is converted into a C corporation, any distributions within the post transition termination period are considered to be from the AAA of the S corporation (and will not be taxable).

PTTP begins on the day of termination and ends on the later of one year after the termination date, or (2) the due date for filing the final S Corporation tax return (including extensions).

S Corporations that were previously C corporations are subject to a built-in-gains tax @ 21% (the new lowered corporate tax rate) if they sell or distribute assets within 5 years of acquiring that asset, and the S corporation either acquired the asset when the S corporation was a C corporation, or it acquired the asset in a transaction in which the basis of the asset was determined by reference to its basis in the hands of a C corporation. The tax is imposed on the unrealized gain calculated as the difference between the FMV of asset and its basis at the time of S-election.

In this scenario ,Commerce Corp which was previously a C Corp made the S election in the current year. As the appreciated property was sold by the S Corp within 5 years of contribution, the S Corp is subject to built-in gains tax which is computed as follows:

The Built-in-gains tax computed at 21% tax rate on the $10,000 gain is $2,100.

Accumulated adjustment account (AAA) represents the undistributed net income items for S corporation. These have already been taxed to the shareholders. Earnings and profits (E&P) are the profits of the C corporation. These are not taxed until they are distributed as dividend.

AAA is the S corporation income that has already been taxed to shareholders but not yet distributed so AAA distribution is non-taxable.

Accumulated earnings and profits (AEP) is the earning and profits (E&P) accumulated in C corporation years that have never been taxed to shareholders, so AEP distribution is taxable. As S corporations are only subject to a single level of tax, distributions from S corporations are generally not subject to tax for shareholders.

Distributions to the extent of AAA are non-taxable and reduce AAA and shareholder’s basis.

Distributions to the extent of AEP (and in excess of AAA) are treated as taxable dividend income (no effect on shareholder’s basis).

Distributions to the extent of remaining stock basis (and in excess of AAA and AEP), is treated as non-taxable return of capital.

Distributions in excess of stock basis are treated as taxable capital gain distributions.

Any distribution from AAA will not be taxed as it has already been taxed to the shareholders. However, a distribution from AEP is taxed as it is only on distribution.

The internal revenue code provides that when an S corporation is converted into a C corporation, any distributions within the post transition termination period (PTTP) are considered to be from the AAA of the S corporation (and will not be taxable).

PTTP begins on the day of termination and ends on the later of one year after the termination date, or (2) the due date for filing the final S Corporation tax return (including extensions).

Benny terminated S corporation on June 30, 2018. Post transition termination period begins from July 1, 2018 and ends later of June 30, 2019 or September 15, 2019 (filing due date including extensions) i.e. September 15, 2019.

Distribution of $30,000 in December 2018 is within PTTP and is considered to be from AAA and not taxable.

Distribution of $60,000 in December 2019 is after PTTP and is considered to be proportionately from AAA and AEP.

AAA balance on December 31, 2019 = $45,000 - $30,000 (distribution on December 2018) = $15,000.

AEP balance on December 31, 2019 = Earnings of 2018 $45,000 + earnings of 2019 $60,000 = $105,000.

Distribution of $60,000 is considered to be $7,500 from AAA and $52,500 from AEP.

What is the amount of loss that Frank must carry forward to future tax years?

Non-corporate taxpayers are allowed to offset business losses up to $262,000 ($524,000 for joint filers) – 2021 limits from other sources of taxable income, the remaining are ‘excess business losses’ that can be carried forward to the future years indefinitely [carry back not allowed] and are subject to the 80 percent taxable income limitation [exception is NOL created from farming losses that can still be carried back 2 years].

Before calculating the excess business loss, the at-risk limitations and passive activity limits are applied. The at-risk rules relate to the investments in an activity while passive rules relate to the taxpayer’s participation in the activity. To determine the maximum amount of loss allowed for a year, an at-risk limitation is applied first to each activity and then passive loss limitation is applied to all losses from all passive activities to determine the amount of loss deductible for the year.

In the given case, net business losses are $400,000 and pass-thru losses from S Corp are $1,350,000. Unless indicated otherwise, losses from S Corp are passive. Further, as no information is provided with respect to the taxpayer’s basis in an S Corp, we assume the basis is large enough to cover the losses, however, as there is no other passive income, the entire $1,350,000 loss from S Corp would be carried forward to the future years to be offset against the passive income only. $400,000 (<$524,000 limit for MFJ for 2021) of business losses on the other hand can offset taxable salary leaving the taxable income as $500,000 ($900,000 - $400,000).

Accordingly, the total amount of loss that Frank will carry forward to the future years would be $1,350,000.

The Tax Cuts and Jobs Act of 2017 has modified existing laws for an eligible S-Corporation which terminates the S-Corporation election and converts to a C-Corporation during the 2-year period beginning December 22, 2017 and has the same owners of stock in identical proportions on December 22, 2017, and on the date of revocation:

Adjustments resulting from the change in accounting method (e.g. cash to accrual method) may be spread over a 6-year period starting with the year of change [vs. 4-year period as per prior law].

In addition, the distributions during PTTP (Post Transition Termination Period) are treated as first coming from accumulated adjustment account (AAA) - i.e., tax-free [same as earlier rule] and distributions after expiration of PTTP are treated as coming out of the corporation’s AAA (tax-free) or E&P (taxable as dividend) in the same ratio as the amount of the corporation’s AAA bears to the amount of the corporation’s accumulated E&P [the prior law treated distributions as coming first from the corporation’s E&P and, thus, was entirely taxable as a dividend to that extent].

PTTP begins on the day of termination and ends on the later of (1) one year after the termination date, or (2) the due date for filing the final S Corporation tax return (including extensions).

As per the Tax Cuts and Jobs Act of 2017 (TCJA) individual taxpayers are allowed to deduct, in addition to standard OR itemized deductions from AGI, 20% of qualified business income (QBI) from qualified trade/business. Qualified business income includes items of income, gain, deduction, and loss from qualified trades or businesses. It includes income from sole proprietorships, pass-thru entities like partnerships, S-Corporations and certain trusts.

With respect to the given S Corp, the S Corp is not eligible for a QBI deduction. However, each individual shareholder shall report pass-through income of $125,000 and would be eligible to claim a QBI deduction of $25,000 ($125,000 X 20%).

In case the business is of a specified service trade or business (SSTB) nature, taxpayers receiving income from pass thru entities are eligible for deduction only if the taxpayer's taxable income is below certain level (Note: Taxpayers with taxable income above $214,900/ $429,800 for MFJ are not eligible for QBI deduction on income received from a SSTB - 2021 limits). Since the business is not an SSTB, there is no limitation and the individual shareholder can claim 20% of the pass-through income ($125,000 X 20%) as QBI deduction.

Generally a gain or loss is realized in the event of liquidation of partnership interest which is equal to the difference between the amount realized and outside basis of the partner. The amount realized is equal to cash and/or property received plus debt relief. Also if both cash and property are distributed, cash distributions are applied first to the partner basis, followed by property distributions. While excess cash distributions can result in a gain or loss to the partner, property distributions cannot. Therefore when adjusted basis of property distributed exceeds the partner's outside basis, the property takes a substitute basis equal to the partner's outside basis such that the outside basis is not reduced below zero.

Reid's gain or loss from the liquidating distribution and the eventual basis in the land received can be computed as follows:

Gain to recognize on distribution of cash in excess of partner's basis $1,000

Since the full amount of partner's basis has been absorbed by the cash distribution, the partner recevies a zero basis on the land distirbuted.

Reid, Welsh, and May are equal partners in the RWM partnership. Reid's basis in the partnership interest is $60,000. Reid receives a liquidating distribution of $61,000 cash and land with a fair market value of $14,000 and an adjusted basis of $12,000. What gain must Reid recognize upon the liquidation of his partnership interest?

The tax treatment for losses in excess of the at-risk amount is allowed to be carried forward indefinitely and can be deducted against income in future years from that activity.

When a partner contributes an asset to the partnership, the partnership carries over both the partner's basis in the asset and the original acquisition date. Therefore, if a partner had a long-term holding period in the asset, the partnership's holding period would also be long-term.

Guaranteed payments are payments made to partners for service or use of capital, irrespective of the partnership's income/loss. These payments are both (i) ordinary business expense to the partnership and (ii) a separately stated item on Schedule K as not all partners receive guaranteed payments. The partners report these payments as self-employment income on their individual income tax return subject to self-employment tax.

When a partner sells an interest in partnership and the remaining members plan to continue the business:

(1) The new business with continuing partners gets a different tax identification number.

(2) The existing assets are distributed to the remaining partners and the assets of the terminated partnership are treated as contributions to the new business.

Inherited property is received at its Fair Market Value (FMV) on the date of decedent's death, unless the executor of the estate chooses an alternate valuation date. Accordingly, Lee inherits the partnership interest from Dale at FMV of $70,000, which is now his basis in the partnership.

Generally, the partnership decides how to figure income from its operations i.e. it makes elections that affect the net business income of the partnership. For example, choosing the accounting method and depreciation methods it will use. Additionally, a partnership is free to choose any method approved by the IRS.

• However, the negative balance in Grant's account of $9,000 must be allocated among the remaining partners as no partner's capital account can go below zero. The deficit of $9,000 is allocated based on the profit sharing % of the remaining partners as follows:

• Upon allocation of losses, Elgar who had a capital contribution of $100,000 for 30% interest, has a balance of $40,000.

• Elgar now has a balance of $37,000 after adjusting for partnership losses of $40,000 and Grant's deficit of $3,000. Therefore, the cash distribution to Elgar upon dissolution of partnership will be equal to his remaining capital balance of $37,000.

Section 734(b) allows an increase or decrease to the partnership property after distribution of assets that are of two types: (a) distribution resulting in recognition of gain or loss (Section 731(a)) and (b) distribution in which tax basis of assets is changed (Section 732)). For this Section 754 election should be in effect.

Mandatory Section 734(b) adjustments must be made if there is a distribution of partnership property in liquidation of a partner’s interest and the downward adjustment to the basis of partnership assets would exceed $250,000 (I.R.C. § 734(d)).

A 754 election activates both Section 734(b) and Section 743(b). A Section 743(b) adjustment is made when there is a sale or exchange of a partnership interest or on the death of a partner. The Section 743(b) adjustment equals the difference between the value of the outside basis to the transferee partner (e.g., purchase price or date of death value) and his share of the partnership’s adjusted basis to the partnership of the partnership property. Similarly, under section 734 (b) adjustments are made to the tax basis of partnership assets when there is a distribution of partnership interest. This distribution can result in recognition of gain or loss. The adjustment increases the bases of the partnership assets by the gain recognized and decreases the bases of the partnership assets by the loss recognized.
Therefore, a 754 election allows reconciling a new partner's outside and inside basis in the partnership.

`A Section 743(b) adjustment is made when there is a sale or exchange of a partnership interest or on the death of a partner only if the election provided by section 754 (relating to optional adjustments to the basis of partnership property) is in effect with respect to the partnership. Irrespective of whether the partnership has made a 754 election, mandatory Section 743(b) adjustments must be made to the basis of partnership assets if immediately after the transfer of a partnership interest, the adjusted tax basis of all of the partnership assets exceeds the fair market value of the partnership assets by more than $250,000 upon a hypothetical sale of all of the entity's assets at FMV. TCJA has now modified the definition of substantial built-in-loss to add a rule that focuses on a partner level determination. The new rule specifically provides that a substantial built-in-loss exists if the transferee would be allocated a net loss in excess of $250,000, upon a hypothetical sale of all partnership's assets in a fully taxable transaction for cash equal to the asset's fair market value, immediately after the transfer of such partnership interest.

While property contribution is at the carryover basis of the partner, any services rendered to the partnership in exchange for partnership interest, is considered at FMV. Here, Scott received a capital interest with a FMV of $55,000 in exchange for contribution of property worth $42,000 and services; therefore, the value of services is $13,000 ($55,000 - $42,000).

Therefore, Scott's basis in his partnership interest is the sum of basis in asset transferred of $28,000 and FMV of services rendered of $13,000, for a total of $41,000. Note, the partner must also recognize compensation income of $13,000,equal to the FMV of services rendered on his individual income tax return.

Gifts and Estate taxes are "unified" in nature, i.e., all taxable gifts given by the deceased during his/her lifetime is added to the taxable estate and the estate tax is computed on the total. Therefore, it can be said that lifetime taxable gifts and transfers at death are taxed on a cumulative basis. The gift taxes that were paid during the lifetime, are considered as prior payments on the overall unified tax that will reduce the balance tax due on the estate tax return.

The Tax Cuts and Jobs Act of 2017 (TCJA) has introduced an excise tax on executive compensation (of a covered employee) in excess of $1 million or in case of any excess parachute payment. While the provisions regarding the non-deductibility of such excess compensation (also excise tax on parachute payments) have been in place with respect to for profit organizations, TCJA has introduced an excise tax of 21% with respect to excess compensation and excess parachute payments of tax exempt organizations.

Unrelated business income refers to income obtained from regularly operated business activities which are not related to the organization’s tax exempt purpose. Any exempt organization will have to file a business income tax return (Form 990-T) and pay income taxes on UBI in excess of $1,000. The Tax Cuts and Jobs Act of 2017 (TCJA), requires that tax-exempt organizations compute net UBI separately for each unrelated trade or business. A loss derived from one UBI cannot offset the other and is treated as a net operating loss (NOL). As per the TCJA, a NOL generated after January 1, 2018, may only be carried forward, NOL carrybacks are no longer allowed. NOL deductions with respect to UBI are only allowed for that trade or business from which the loss arose.
The university’s loss from the copy center cannot be set off against income from pizza parlor. UBI of $15,000 (from pizza parlor) is reported in 2018 and the net operating loss of $20,000 (from copy center) is carried forward.

The Tax Cuts and Jobs Act of 2017 (TCJA) has introduced an excise tax of 21% on compensation in excess of $1,000,000 (or an excess parachute payment) paid to a covered employee by an exempt organization. A covered employee is any applicable tax-exempt organization employee (or former employee) if the employee is one of the organization’s five highest compensated employees for the tax year or any preceding tax years after December 31, 2016. Also, the term “remuneration” shall not include the portion of any remuneration paid to a licensed medical professional (including a veterinarian) which is for the performance of medical or veterinary services by such professional. This implies that remuneration paid to the Chief of Neurosurgery all of which is with respect to medical services is not liable for excise tax on excess compensation.

(5) If this were an LLC, it could choose to be treated either as a corporation or partnership. In either case as described in points (3) and (4), Eagle's basis at year end would not be $70,000.

As stated above losses from the S corporation cannot reduce stock holder basis below zero. Therefore even though the S Corp. had $2,000 in losses available for pass-thru, Stone can deduct only up to his remaining basis of $1,500 after the distributions. Suspended losses of $500 can be carried forward to future years until utilized.

Charitable remainder unitrusts and charitable remainder annuity trust cannot qualify as electing small business Corporations. For the other types of trusts, who are eligible to be S Corp shareholders, all beneficiaries of the trust must be individuals or estates who are US citizens or residents (with the exception to ESBT as noted above).

All shareholders must be individuals. Certain estates and trusts can also be shareholders such as an Electing Small Business Trust, Qualified Subchapter S Trust, Bankruptcy estate & exempt trusts

Post Termination Transition Period (PTPP) is the period that occurs after termination of S Corporation election of a domestic corporation. The taxability of distribution from a C corporation (after revocation) depends on the period of distribution i.e. during the PTPP and after the PTPP.
PTPP begins on the day of termination and ends on the later of (1) one year after the termination date, or (2) the due date for filing the final S Corporation tax return (including extensions).
Distributions during PTPP are tax-free as they are considered to be distributions from AAA (accumulated adjustment account) of the Erstwhile S Corporation. Distributions after end of PTPP are considered to be in proportion of the AAA (tax-free) and AEP( accumulated earnings and profits) of the C Corporation (taxable

The Tax Cuts and Jobs Act of 2017 has modified existing laws for an eligible S-Corporation which terminates the S-Corporation election and converts to a C-Corporation during the 2-year period beginning December 22, 2017 and has the same owners of stock in identical proportions on December 22, 2017, and on the date of revocation:
Adjustments resulting from the change in accounting method (e.g. cash to accrual method) may be spread over a 6-year period starting with the year of change [vs. 4-year period as per prior law].
In addition, the distributions during PTTP (Post Transition Termination Period) are treated as first coming from accumulated adjustment account (AAA) - i.e., tax-free [same as earlier rule] and distributions after expiration of PTTP are treated as coming out of the corporation’s AAA (tax-free) or E&P (taxable as dividend) in the same ratio as the amount of the corporation’s AAA bears to the amount of the corporation’s accumulated E&P [the prior law treated distributions as coming first from the corporation’s E&P and, thus, was entirely taxable as a dividend to that extent].
PTTP begins on the day of termination and ends on the later of (1) one year after the termination date, or (2) the due date for filing the final S Corporation tax return (including extensions).

If the exempt-organization is a corporation, it will pay tax on UBI at corporate tax rates and if it is a trust, it will pay at trust tax rates. The current corporate tax rate is a flat rate of 21% (from a range of 15% to 35% under prior law).

TCJA Update: Tax-exempt organizations are required to compute net UBI separately for each unrelated trade or business. A loss derived from one UBI including NOL cannot offset the income from other related trade or business. Additionally, organizations that have employees, the UBTI reported, is increased by an amount for which deduction is not allowable (e.g., entertainment, amusement, recreation, transportation fringe benefit).

The Tax Cuts and Jobs Act of 2017 (TCJA) has introduced an excise tax on executive compensation (of a covered employee) in excess of $1 million or in case of any excess parachute payment. While the provisions regarding the non-deductibility of such excess compensation (also excise tax on parachute payments) have been in place with respect to for profit organizations, TCJA has introduced an excise tax of 21% with respect to excess compensation and excess parachute payments of tax exempt organizations.

A parachute payment is defined under Section 4960 and is a payment in the nature of compensation to (or for the benefit of) a covered employee if the payment is contingent on the employee's separation from employment and the aggregate present value of all such payments equals or exceeds three times the base amount. The base amount is the average annualized compensation includible in the covered employee's gross income for the five taxable years ending before the date of the employee's separation from employment. An excess parachute payment subject to Section 4960 is the amount by which any parachute payment exceeds the portion of the base amount allocated to the payment.

The university is liable for excise tax on the excess parachute payment of $600,000.