Archive for August, 2015

Can an S corporation own an interest in another business entity?


An S corporation may own an interest in another business entity.

An S corporation can be a member of an affiliated group by owning 80 percent or more of the stock of a C corporation. The group then can elect to file on a consolidated basis, if other affiliated group rules are met. But the S corporation itself cannot join the consolidated group.

Although in general only individuals can be shareholders in an S corporation, an S corporation can own an S corporation if the subsidiary corporation would otherwise qualify as an S corporation if the parent’s shareholders held the subsidiary’s shares directly, and the taxpayer elects qualified S corporation status for the subsidiary.

Generally, for federal tax purposes a corporation that is a qualified S corporation subsidiary is not treated as a separate corporation, and all assets, liabilities, and items of income, deduction, and credit of a qualified S corporation subsidiary are treated as assets, liabilities, and items of income, deduction, and credit of the S corporation.

An S corporation can also be a partner in a partnership or a member of an LLC.

 

J. Michael Grinnan, CPA.CITP
Certified Public Accountant
9900 Corporate Campus Drive
Suite 3000
Louisville, KY 40223
Main Number 1-502-657-6333
Email Mike@JMGCPA.com.

 

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A federal judge in Brooklyn explained in a court memo released on Wednesday why he rejected a landlord’s attempt to use a child’s Hispanic ethnicity to argue for reduced damages in a lead poisoning case.

Judge Jack B. Weinstein ruled that the attempt violated federal law governing the use of statistical generalizations based on race or ethnicity, and forbid experts on both sides to discuss them.

A lawyer for Mark Kimpson, the landlord, was seeking to reduce the $2 million in damages awarded to the child and his mother after she sued over lead poisoning.

A jury awarded the damages on July 10 after finding that the apartment the family rented from Mr. Kimpson contained lead-based paint that had not been properly removed or contained.

“Posed is the question,” Judge Weinstein wrote, “can statistics based on the ethnicity (in this case, ‘Hispanic’) of a child be relied upon to find a reduced likelihood of his obtaining higher education, resulting in reduced damages in a tort case? The answer is no.”

To contest the damages, Mr. Kimpson’s lawyer, Roger V. Archibold, needed to persuade the court that the boy’s prospects for attending college and earning a degree if he had not had lead poisoning were already low. Mr. Archibold argued that because Hispanics are less likely to attend college, the boy’s chances for doing so were improbable.

In a 52-page memo, Judge Weinstein wrote that he rejected the argument based on a case in which the use of race- and ethnicity-based statistics was found to be in violation of the Constitution’s equal protection and due process clauses.

The memo on Wednesday does not affect the jury verdict, which Mr. Archibold has appealed to the Court of Appeals for the Second Circuit.

Mr. Archibold said Judge Weinstein had “mischaracterized” the defense’s argument about the child’s ethnicity. Mr. Archibold said he was confronting an expert hired by the plaintiffs whose statements at the trial did not seem to line up with the study he was citing.

“The expert was confronted with the evidence of the study that he quoted,” he said. “He opined that the study gave him these statistics and it did not.”

Judge Weinstein added that Mr. Archibold was required to use specific characteristics of the child and his family, rather than the characterization of the child as a member of a particular ethnic group, in projecting damages. The boy’s father has a bachelor’s degree and his mother has a Master of Fine Arts. Both held responsible income-generating jobs, the family was stable, and the parents were caring, Judge Weinstein said.

“Based upon his specific family background, had the child not been injured, there was a high probability of superior educational attainment and corresponding high earnings,” Judge Weinstein wrote. “Treated by experts as a ‘Hispanic,’ his potential, based on the education and income of ‘average “Hispanics” in the United States,’ was relatively low.”

The boy’s mother, Niki Hernandez-Adams, rented a basement apartment from Mr. Kimpson in an old building at 490 MacDonough Street in Bedford-Stuyvesant, where she lived while pregnant and after the boy turned 1.

During a visit to the pediatrician after his first birthday, the boy was found to have elevated levels of lead in his blood. Ms. Hernandez-Adams claimed in her lawsuit that the lead poisoning had damaged the boy’s central nervous system.

Mr. Archibold argued that Mr. Kimpson had sufficiently contained the hazardous lead-based paint in the apartment. Before the family moved in, the landlord had covered the old paint with new paint and drywall, according to the judge’s memo.

Mr. Archibold blamed the family’s dog for severely scratching the walls and the moldings in the apartment, releasing lead dust. He also claimed that the infant’s cognitive and behavioral difficulties resulted from other medical conditions of his mother during her pregnancy.