Methodology

How CCorpVsSCorp.com Verifies Tax-Election Data

Primary sources, calculation framework, in-scope and out-of-scope coverage, monthly refresh cadence, and corrections process. Every figure, citation, and recommendation on this site should be re-derivable from primary sources by anyone using the URLs below.

Last full source pass: May 2026

01. Primary and named sources

Source	Refresh cadence	What we take from it
IRS Publication 542 (Corporations)	Annual revision cycle	C-corporation tax mechanics: 21% flat federal rate, qualified-dividend treatment, distribution rules, accumulated earnings, retained earnings, dividend received deduction. The authoritative federal primer on C-corp taxation.
IRS Form 1120 instructions	Annual	Annual return for C-corporations. Schedule M-1 / M-2 mechanics, NOL carryforward rules, AMT-related rules where relevant. Sourced from the current-year instructions.
IRS Form 1120-S instructions	Annual	S-corporation annual return + Schedule K-1 mechanics. Built-in gains computation (Form 1120-S Schedule D / 8949), AAA tracking rules, distribution ordering.
IRS Form 2553 instructions	Annual	S-corp election deadlines (March 15 for existing entities, 75 days for new), shareholder consent requirements, the reasonable-cause statement standard, and the Rev Proc 2013-30 late-relief invocation procedure.
Internal Revenue Code on Cornell LII	Statute-change driven	IRC Section 11 (corporate income tax), Section 1361 (S-corp definition + eligibility), Section 1362 (election + revocation + termination), Section 1374 (built-in gains), Section 1202 (QSBS), Section 199A (QBI deduction), Sections 531-537 (Accumulated Earnings Tax). Primary statutory text, not paraphrase.
TCJA (Public Law 115-97, December 2017)	Permanent except where sunset	Established the 21% flat corporate rate (permanent). Created the 20% QBI deduction under Section 199A, originally with a 2025 sunset that was made permanent by OBBBA.
OBBBA (Public Law 119-21, 2025)	Statute-change driven	Made the Section 199A 20% QBI deduction permanent (had been set to sunset 31 December 2025 under TCJA). Adjusted SSTB phase-out thresholds. Treasury implementing regulations partially in flight for 2026.
Rev Proc 2013-30	Stable since publication	Automatic late-election relief for missed Form 2553 deadlines. Five-condition test: intended S status from effective date, sole cause was late filing, corrective filing within 3 years 75 days, reasonable cause, and consistent shareholder reporting. The Treasury procedure that converts a missed deadline into a recoverable position.
IRS reasonable-compensation guidance	Periodically refreshed	The nine-factor reasonable-salary framework (training, duties, time devoted, dividend history, payments to non-shareholder employees, bonus timing, comparable wages, agreements, formula use). Anchors the audit-defensibility standard.
Watson v Commissioner (8th Cir 2012, 668 F.3d 1008)	Case-law stable	Eighth Circuit opinion reclassifying $67,044 of David E. Watson PC distributions as wages. Establishes that the IRS can reclassify when salary is unreasonably low relative to comparable wages; documented salary process is the primary defence.
Glass Blocks Unlimited v Commissioner (T.C. Memo 2013-180)	Case-law stable	Tax Court opinion reclassifying loan repayments to a shareholder as wages where the shareholder took no salary at all. Establishes the floor: zero-salary positions are indefensible.
BLS Occupational Employment and Wage Statistics (OEWS)	Annual May reference period	Federal-government wage data by Standard Occupational Classification (SOC) code and metropolitan area. The standard third-party comparable-wage anchor cited in reasonable-salary analyses and audit defences.
SBA Choose A Business Structure	Periodically refreshed	Federal government overview of entity types. Used as a cross-reference for entity-choice basics, not as authority for specific tax mechanics.
State revenue department pages	Annual fiscal-year cycle	50 state revenue departments + DC. California FTB (S-corp tax 1.5%, $800 minimum franchise tax), New York DTF (Form CT-6 conditional recognition), New Hampshire DRA (BPT 7.5% + BET 0.55%), Tennessee DOR (Excise 6.5% + Franchise 0.25%), Texas Comptroller (margin tax), DC OTR (non-recognition, corporate franchise 8.25%), New Jersey DOR (Form CBT-2553).
Nolo and LegalZoom Education Center	Cross-reference	Secondary references for entity-choice basics and procedural overviews. Not used as authority for rates, statutory citations, or case-law claims; primary sources above are always the citation.

02a. In scope

●Federal tax mechanics: 21% C-corp flat rate, qualified-dividend stacking, S-corp pass-through via Schedule K-1, SE-tax saving on distributions above a reasonable salary, QBI Section 199A 20% deduction, QSBS Section 1202 founder exclusion, NIIT 3.8% application.
●Form 2553 election: deadlines, late-relief mechanics under Rev Proc 2013-30, revocation procedure, automatic-termination triggers under IRC 1362(d).
●Eligibility: 100-shareholder cap, US-individuals-only rule, single class of stock, eligible trust types (grantor, QSST, ESBT, voting), ineligible corporation types, passive-income trap.
●Conversion mechanics both directions: C-to-S (IRC 1374 built-in gains 5-year recognition window, LIFO recapture, AAA at zero), S-to-C (QSBS clock reset, Post-Termination Transition Period, 5-year re-election wait under IRC 1362(g)).
●Reasonable-salary defensibility: nine-factor IRS analysis, BLS OEWS comparable-wage anchor, Watson v Commissioner case-law citation, audit-trigger thresholds, documentation patterns.
●QSBS Section 1202: $10M or 10x basis cap, 5-year holding period, $50M gross asset test, 80% active-business asset requirement, excluded service businesses (Section 1202(e)(3)), stacking via family members and trusts, Section 1045 rollover, California non-conformity.
●50-state matrix: federal-election recognition, entity-level franchise tax, state-specific election forms (CT-6, CBT-2553), state QSBS conformity. Verified against each state's revenue department.

02b. Out of scope

●State Pass-Through Entity Tax (PTET) workarounds for the federal SALT cap (NY PTET, CA PTE, NJ BAIT, etc.) - these are a separate optimisation layer that interacts with but is independent of the C-corp vs S-corp choice.
●International tax: Controlled Foreign Corporation (CFC), GILTI, FDII, Subpart F, foreign tax credit interaction. The site focuses on US-domiciled entities with US-individual shareholders.
●Private letter rulings (PLRs) and chief counsel advice as authority. Cited where genuinely illustrative; not relied on as binding precedent.
●Estate planning, generation-skipping transfer tax, and irrevocable trust structuring beyond the basic entity-eligibility intersection (QSST / ESBT mechanics).
●Specific CPA-firm hourly rates, regional pricing variance below the disclosed $1,000-$2,500 1120-S preparation range, and individual firm comparisons.
●M&A tax: 338(h)(10) and 336(e) elections, F-reorganisation deal structures, post-acquisition built-in loss limitations. Mentioned where the site's exit math touches them; not the primary subject.

03. Calculation framework

SE-tax savings formula

SE tax = 15.3% on wages up to the Social Security wage base ($168,600 in 2026 - this is the SS portion of FICA, 12.4%), plus 2.9% Medicare (no cap) plus 0.9% Additional Medicare above $200k single / $250k MFJ. S-corp owner pays FICA only on salary. SE-tax saving on distributions = (Distribution above salary) x 15.3%, subject to the SS wage base. Worked example on /taxes shows the saving at each income tier.

S-corp compliance breakeven

S-corp adds payroll service ($600-1,800/yr), Form 1120-S preparation ($1,000-2,500/yr), state franchise tax (CA $800 minimum, NH BPT/BET, TN F&E, TX margin). Total compliance overhead: $2,500-$10,000/yr depending on state and complexity. Net saving = SE-tax saving on distributions minus compliance overhead. Breakeven income is typically $40,000-$80,000 of net business income depending on state and salary level.

QSBS exit exclusion math

QSBS exclusion = greater of $10M or 10x cost basis per issuer per taxpayer. For post-September 2010 QSBS, 100% federal exclusion with no AMT preference. California does not conform: full California rate (up to 13.3%) on the entire gain. Worked example: $10M sale of QSBS held >5 years, 0% federal vs ~13.3% California vs ~23.8% S-corp federal (LTCG + NIIT).

QBI 199A 20% deduction mechanics

20% deduction of qualified business income, claimed on the shareholder's Form 1040. Specified Service Trade or Business (SSTB - consulting, law, health, accounting, performing arts, athletics, financial services) phase-out begins at $191,950 single / $383,900 MFJ in 2026; full phase-out at $241,950 single / $483,900 MFJ. Above full phase-out, SSTBs lose the deduction entirely; non-SSTBs are subject to W-2 wage / UBIA-of-property limits. Permanent post-OBBBA.

Reasonable-salary framework

Nine-factor IRS analysis: training and experience, duties and responsibilities, time devoted to the business, dividend history, payments to non-shareholder employees, bonus timing, comparable wages in the market, compensation agreements, and use of formula. Anchored by BLS OEWS comparable-wage data for the relevant SOC code and metropolitan area. Documented annually in board minutes. Watson v Commissioner is the leading case authority.

State recognition matrix

32 states recognise the federal S election cleanly with no entity-level tax. 18 states add their own treatment: CA $800 minimum + 1.5%, NH BPT 7.5% + BET 0.55%, NY conditional via Form CT-6, NJ conditional via Form CBT-2553, TN F&E (Excise 6.5% + Franchise 0.25%), TX margin tax, DC non-recognition (treats S-corps as C-corps for DC purposes), IL 1.5% personal property replacement tax. Verified against each state's revenue department page.

04. Refresh cadence

Rates, citations, deadlines, and state entity-tax figures are re-verified against the primary sources listed in Section 01 on the first business week of each month. The verification date is stored in a single constant (LAST_VERIFIED_DATE) that the footer text, the schema dateModified, hero stamps, and disclaimer copy all read from. Cosmetic date refreshes are not possible without a real source pass.

Out-of-cycle refresh triggers:

●IRS Publication 542 annual revision (typically January).
●TCJA / OBBBA implementing regulations published in the Federal Register.
●New Tax Court or Circuit Court opinion on reasonable salary (anything that updates the Watson / Glass Blocks line).
●State DOR rate change (CA franchise minimum, NY entity tax, NH BPT/BET rate, TN F&E, TX margin tax thresholds).
●IRS update to the reasonable-compensation factor framework or the related guidance set (FS-2008-25 successor publications, new internal revenue manual sections).

05. Limitations

Calculator outputs are estimates. The /calculator tool models federal tax (21% corporate, qualified dividend, NIIT, SE tax, QBI 199A) plus entity tax for CA, NH, TN, and TX. It does not model state personal income tax, SALT cap interaction, NOL carryforwards, multi-state apportionment, or the QSBS exclusion itself. Real tax liability depends on facts not in the model.
Corporate tax-election decisions are sticky. A revoked S election triggers a 5-year wait before re-election under IRC 1362(g) absent IRS consent. A C-to-S conversion exposes appreciated assets to built-in gains tax for 5 years under IRC 1374. The conversion direction matters as much as the election itself.
State conformity is uneven. California, New Jersey, Pennsylvania, and several others do not conform fully to federal corporate provisions (QSBS, QBI, certain depreciation). State recognition can change without federal-level signal.
Reasonable-salary defensibility is fact-specific. A defensible number depends on the shareholder's actual duties, hours, comparable-wage data for the SOC code and metropolitan area, and documented annual analysis. The ranges shown on /reasonable-salary are starting points, not guarantees.
Case-law landscape evolves. Watson v Commissioner and Glass Blocks Unlimited are the leading published opinions, but the Tax Court issues additional reasonable-comp opinions periodically. The site refreshes case-law citations on each monthly pass.
Not a substitute for a qualified CPA or tax attorney. This site is a reference. Every actual entity election should be made with professional advice that accounts for the specific facts of your business, your state, your shareholders, and your exit plan.

06. Corrections process

Spotted a stale rate, a missing case-law citation, an outdated state entity-tax figure, or a vendor change we have not caught yet? Email [email protected] with the page URL, the specific text that needs correcting, and the primary source you would like cited. Substantive corrections are typically actioned within five business days.

Editorial position, scope, and disclosures are documented on the about page.