Title 26: Internal Revenue
PART 1—INCOME TAXES
Small Business Corporations and Their Shareholders
§1.1361–1 S corporation defined.
(a) In general. For purposes of this title, with respect to any taxable year—
(b)....
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(e) Number of shareholders—
(1) Generalrule. A corporation does not qualify as a small business corporation if it has more than 75 shareholders (35 for taxable
years beginning prior to January 1, 1997).
(2) Special rules relating to stock owned by husband and wife. For purposes of paragraph (e)(1) of this section, stock owned by a husband and wife (or by either or both of their estates) is treated as if owned by one shareholder, regardless of the form in which they own the stock.
(f) Shareholder must be an individual or estate.
(g) Nonresident alien shareholder—
(1) General rule.
(i) A corporation having a shareholder who is a nonresident alien as defined in section 7701(b)(1)(B) does not qualify as a small business corporation. If a U.S. shareholder’s spouse is a nonresident alien who has a current ownership interest (as opposed, for example, to a survivorship interest) in the stock of the corporation by reason of any applicable law, such as a state community property law or a foreign country’s law, the corporation does not qualify as a small business corporation from the time the nonresident alien spouse acquires the interest in the stock. If a corporation’s S election is inadvertently terminated as a result of a nonresident alien spouse being considered a shareholder, the corporation may request relief under section 1362(f).
(ii) The following examples illustrate this paragraph (g)(1)(i):
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(2) Special rule for dual residents. [Reserved]
(h) Special rules relating to trusts—
(1) General rule. In general, a trust is not a permitted small business corporation shareholder. However, except as provided in paragraph (h)(2) of this section, the following trusts are permitted shareholders:
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