[[Roy, could you please offer some guidance.]]I'll try...but remember that this is a folder for individual tax issues. If we got into corporation and partnership tax issues, it would become VERY boring and VERY complicated in a VERY short period of time.[[ I currently have a C corp that derives most of its revenue from rentals.]]DO YOU??? Your current accountant might want to review a section of the code (542) regarding personal holding companies. If these are really rents (and you are not operating a business), you may have some Personal Holding Company problems...and a tax of 39.6% on any undistributed PHC income. So have him check it out.[[ These rentals are space for antennae's on communication towers and the rental of single family homes. ]]Wow...a real live PHC. You've got some issues to deal with. Much larger than anything that you might have imagined...and certainly larger than your question. [[I would like to change from a C Corp to an S Corp but my accountant states that I can not since more than 25% of my revenues are from passive income.]]Which is why I'm amazed that your accountant didn't tell you about the Personal Holding Company. If you have a C corporation, and 60% of the income is PHC income (which is sounds like yours is), you have PHC issues. Forget the S corp issues. Regarding the "S" corporation, he is exactly correct. If you have prior earnings and profits as a C corporation, and your passive income is more than 25% of gross receipts, then you are in violation of the passive income rules for an S corporation.Uncle Sammy doesn't want you to be able to take your gains in the corporation and subject them to "pass through" after you have already sheltered them in the C corporation. IRS doesn't want you to pass through those gains and get the preferred capital gains tax treatment on your individual tax return, when they can tax you at the regular corporate rate on your C corporation (corporations don't receive the preferred capital gains tax rates). [[ Do you know anything about such a ruling, and if so could you please refer me to the location of such material so that I may dig into this a little further. Thanks for your help.]]IRS Publication 589 will explain it to you. You can download/read Pub 589 at the IRS web site. And, while you are there, you just might want to download/read IRS Form 1120PH and the associated instructions regarding personal holding companies. Good luck...TMF TaxesRoyWant to learn more about taxes and investing? Then we have a deal for you!! The Motley Fool Investment Tax Guide is now available through Fool Mart. Be the first one on your block to own this masterpiece. It'll help you with your 1998 taxes, and it's never to early to start planning for your 1999 taxes. So just click on this link (http://www.foolmart.com/market/product.asp?pfid=MF+013+I) to read more about this amazing collection of tax information. (Apologies for the shameless plug…but it is a pretty good book…if I do say so myself). In addition, if you would like to visit the Taxes FAQ (Frequently Asked Questions) area, click on http://www.fool.com/school/taxes/taxes.htm and you'll be right at the home page. Pay special attention to the "archives" section. Check it out. Finally, if you need to get to the IRS web site, click on http://www.irs.ustreas.gov to go directly there.
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