Mike Thrift
Marketing Manager
The Section 1375 Sting Tax: How Former C Corps Pay 21% on Passive Income and Lose Their S Election After Three Years
Section 1375 imposes a flat 21% sting tax on S corporations that carry C-corp earnings and profits when passive investment income exceeds 25% of gross receipts, and three consecutive years over that threshold terminates the S election automatically. This guide walks through the excess net passive income formula, the three-year cliff under Section 1362(d)(3), and three planning moves to defuse exposure before year-end.
The Section 1375 Sting Tax: How S Corporations Trigger the 21% Passive Income Tax and a Three-Year Termination Cliff
The Section 1375 sting tax hits an S corporation with a 21% corporate-level tax when it has C-corporation E&P and passive investment income above 25% of gross receipts; three consecutive years of that combination terminates the S election. This guide shows who is exposed, how excess net passive income is calculated, and how to defuse the trap.
Section 414 Controlled Group and Affiliated Service Group Rules: How Multiple Businesses Can Sabotage Your 401(k)
Section 414(b), (c), and (m) treat related businesses as one employer for retirement-plan testing. This guide explains controlled-group and affiliated-service-group rules, the spousal and minor-child attribution traps, and the steps multi-business owners should take before opening a 401(k).
The Section 45E Credit: How Small Employers Can Run a New 401(k) at Near-Zero Cost
A new 401(k) can be nearly free for small employers — Section 45E reimburses up to 100% of startup costs for three years plus $1,000 per employee in contribution credits for five years. Here is who qualifies and how to claim it on Form 8881.
Section 45E After SECURE 2.0: How Small Employers Recoup 100% of Pension Plan Startup Costs on Form 8881
SECURE 2.0 turned Section 45E into a 100% refund of pension plan startup costs—up to $5,000 per year for three years—for employers with 50 or fewer employees, stacked with a per-employee contribution credit worth up to $1,000 and a $500 auto-enrollment credit, all claimed on Form 8881.
Section 530 Safe Harbor: How Businesses Survive IRS Worker Reclassification Audits
Section 530 of the Revenue Act of 1978 blocks the IRS from assessing back payroll taxes on reclassified 1099 workers if a business proves reasonable basis, substantive consistency, and reporting consistency. Revenue Procedure 2025-10 now requires examiners to consider the relief first and sets 25% / 10-year thresholds for the industry-practice safe harbor.
Section 530 Safe Harbor: How to Avoid IRS Back Payroll Taxes on 1099 Workers
Section 530 of the Revenue Act of 1978 bars the IRS from collecting back employment taxes on misclassified contractors if a business met three tests—reporting consistency, substantive consistency, and a reasonable basis for treating the workers as 1099 contractors.
Section 6751(b) Supervisory Approval: The Procedural Defense That Can Erase IRS Penalties
Section 6751(b) requires a real IRS supervisor to personally approve penalties in writing before assessment. A working guide to using Chai, the Graev trilogy, and the December 2024 final regulations to defeat accuracy-related, fraud, and information-return penalties — which penalties qualify, what documents to demand, and how to raise the argument at Appeals before paying for Tax Court.
Section 707 Disguised Sale Rules: When a Partnership Contribution Becomes a Taxable Sale
A disguised sale under Section 707(a)(2)(B) collapses a partnership contribution and a related cash distribution into a taxable sale. Transfers within two years are presumed a sale; the deemed-sale fraction equals consideration received divided by property FMV.
Section 707(a)(2)(B) Disguised Sale Rules: How LLC Members Contribute Property and Take Cash Without Triggering a Taxable Sale
Section 707(a)(2)(B) recharacterizes paired property contributions and cash distributions to LLC members as taxable sales when they occur within two years. A walkthrough of the two-prong test, the rebuttable two-year presumption, the four regulatory exceptions, debt-financed distribution mechanics, and the Form 8275 disclosure that keeps partners out of audit trouble.
Section 7508A Disaster Tax Relief: How FEMA-Declared County Residents Get Postponed Deadlines, Coordinate With Form 4868, and Decide on a Prior-Year Casualty Loss
Section 7508A lets the IRS postpone almost any tax-related deadline by up to one year after a federally declared disaster. This guide explains who qualifies as an affected taxpayer, how postponement interacts with Form 4868, what happens to penalties already accruing, and when to elect a prior-year casualty loss under Section 165(i).
Section 7508A: How Federally Declared Disaster Relief Postpones Your Tax Deadlines
Section 7508A lets the IRS postpone tax deadlines up to one year for taxpayers in federally declared disaster counties—usually automatically by address. A Section 165(i) election can also move a casualty loss to the prior year's return for a faster refund.