There are generally five important requirements to qualify as an S corporation under IRC Sec. 1361(b)(1) and these include the following;

I. Must be a domestic corporation.
Under the current tax laws, (Reg. 301.7701-5), an S corporation must be a domestic U.S. corporation that is organized in the United States under federal or state law.

II. Must not be a prohibited entity.
The Entities prohibited from becoming an S corporation include the following:
1. Domestic International Sales Corporations (DISCs),
2. Insurance companies, not including agents or brokers,
3. Corporations electing to use the possessions tax credit,
4. Banks using the reserve method of accounting for bad debts. A bank may
be an S corporation but must use the specific charge-off method.

III.May have no more than 100 shareholders.
Per IRS Sec.1361(b)(1)(A), "an S corporation may not have more than 100 shareholders effective for tax years beginning after December 31, 2004."

IV.Meets qualifying shareholder rules.
The following is a list of some of the Permitted Shareholders of an S Corporation.
1. U.S. citizen or resident individuals.
2. Estates of deceased individuals.
3. Bankruptcy estates IRC Sec. 1361(c)(3).
4. QSST’s.
5.IRC Sec. 501 (c)(3) charities.
6.Qualified Profit Sharing Plans.
7.Qualified Pension Plans.
8.ESOP’s.

The following is a list of some the Non-Permitted Shareholders (specifically excluded shareholders) of an S Corporation.
1.Corporations
2.Partnerships
3.LLP’s
4.IRAs and Roth IRAs
5.State and Local Governments
6.Indian Tribes

V.Meets one class of stock rules.
Any corporation that has more than one class of stock does not qualify as an S corporation. A corporation is treated as having only one class of stock if:
1.All outstanding shares confer identical rights as to distribution and liquidation proceeds.
2.The corporation has not undertaken any other obligation or commitment treated as a second class of stock in the regulations.

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