A finished ACC-681 Topic 8 termination defense memo example, conceding that a partnership shareholder ended the S election, defending the S short year under section 1362(e) and requesting inadvertent termination relief. Searches like "acc 681 topic 8 assignment example", "acc681 topic 8 sample" and "acc-681 topic 8 example" land here.
What a finished ACC-681 Topic 8 termination defense memo looks like
The finished memo takes the classification question first, since both challenges depend on it. A two-member LLC that filed no classification election defaults to partnership status, and section 1361(b)(1)(B) admits no partnership as a shareholder, so the other adviser's view that the LLC is disregarded fails on its member count. Under section 1362(d)(2) the termination took effect on the transfer date, April 1, not on January 1 as the examiner's report assumes. Section 1362(e) splits the year: a 90-day S short year and a 275-day C short year. With illustrative taxable income of $730,000, the pro rata allocation puts $180,000 in the S year and $550,000 in the C year, where 21 percent produces $115,500 of tax. Closing the books would shift income into the C year and cost $12,600 more, so the memo rejects that election.
How an ACC-681 Topic 8 example is structured
The memo is built around the two challenges, answering each with the provision that decides it. An opening states the position in three clauses: the election terminated, it terminated on April 1, and relief will be requested. The first section answers the other adviser, working from the classification regulations to the LLC's two members and then to the shareholder rules in section 1361(b). The second answers the examiner, citing the effective-date rule in section 1362(d)(2) and the short-year split in section 1362(e). A computation panel follows, comparing the pro rata allocation with a closing of the books, which would place $610,000 in the C year because only $120,000 was earned by March 31. The relief section sets out the section 1362(f) conditions and the corrective step already taken, the LLC's return of the shares. A closing paragraph notes the five-year bar on re-electing without consent.
The member count decides classification
Two members and no election make the LLC a partnership under the default rules, which is why the disregarded-entity argument cannot save the S election.
Termination dated to the transfer
Section 1362(d)(2) makes the termination effective on the day the corporation stopped qualifying, so the examiner's January 1 date overstates the C year by 90 days.
Pro rata allocation kept on purpose
Daily proration assigns $550,000 to the C year, while a closing of the books would assign $610,000, and no 50 percent ownership change forces that closing.
The flat rate makes annualization neutral
Section 1362(e)(5) still requires the C short year's income to be annualized, but at a flat 21 percent the result is the same $115,500.
Relief requested under section 1362(f)
The memo argues the termination was inadvertent, shows the shares returned to the shareholder once it was discovered, and states the adjustments the shareholders will accept as a condition.
Where marks go in ACC-681 Topic 8
A defense that picks one side loses before it starts: agreeing with the other adviser denies a termination the shareholder rules make certain, and accepting the examiner's report surrenders an S short year the Code grants. Papers that cite section 1362(d)(2) for the split have the right result and the wrong provision, since the division of the year comes from section 1362(e), a distinction this topic assesses. Treating a two-member LLC as disregarded without counting its members misreads the classification default. A closing of the books elected without comparing it to proration costs the corporation $12,600 on these facts. Memos that stop at the termination and never raise section 1362(f) leave the most useful remedy unused. The five-year bar on a new election is often left out, though a client planning to re-elect next year needs it most.
Get an ACC-681 Topic 8 example written to your instructions
Send the ACC-681 Topic 8 instructions, your rubric and the fact pattern and challenge your section assigned. We write a custom example to them, with the position stated first, each challenge answered by the provision that governs it, the computations compared, relief routes set out and every citation made precise, in 24 to 48 hours. The first is free; it is coursework, never tax advice.
ACC-681 Topic 8 questions, answered
Why can a partnership not hold S corporation stock?
Section 1361(b)(1)(B) limits S corporation shareholders to individuals, estates and certain trusts and exempt organizations, and a partnership is none of them. A single-member LLC owned by an individual is different: as a disregarded entity it is treated as the individual for this purpose, so the stock is treated as hers. That is why the LLC's second member decides this case.
What does inadvertent termination relief require?
Under section 1362(f), the IRS must determine that the termination was inadvertent, the corporation must take steps within a reasonable period after discovery to restore eligibility, and the corporation and its shareholders must agree to any adjustments the IRS requires. Relief is generally sought through a letter ruling request. If granted, the corporation is treated as continuing to be an S corporation for the period the IRS specifies.
Can the corporation simply elect S status again next year?
Not without consent. Section 1362(g) bars a new election for five taxable years after a termination unless the IRS consents to an earlier one. That bar is a large part of why the memo pursues relief under section 1362(f) instead of treating the lost months as a one-year cost. The example is coursework on a composite company and is not tax advice.