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Corporate Elections Under Subchapter S (with Eustice), 39 University of Colorado Law Review 1 (1966)


Over the years, there have been many suggestions that the Internal
Revenue Code be amended to permit (or require) the shareholders of
closely-held corporations to be taxed as though they were carrying on their
activities as partners, i.e., relieving the corporation from taxation on
condition that each stockholder report his share of the corporation's income,
whether distributed to him or not, on his individual income tax return.
Such a proposal was passed by the Senate in 1954 to permit "small
corporations which are essentially partnerships to enjoy the advantages of
the corporate form of organization without being made subject to possible
tax disadvantages of the corporation" and to "eliminate the influence of
the federal income tax in the selection of the form of business organization
which may be most desirable under the circumstances." The 1954 proposal
was eliminated by the conference committee; but the idea was revived in
1958 and enacted into law as Subchapter S of the Internal Revenue Code
(§§ 1371-77), for the announced purposes of allowing businesses to
select their legal forms free of undue tax influence, aiding small business
by taxing the corporation's income to shareholders who may be in lower
brackets than their corporations, and permitting the shareholders of corporations that are suffering losses to offset the losses against individual
income from other sources.

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