An individual in the top tax bracket is planning to establish a new corporation and is weighing the choice between the C corporation form and the S corporation form. She expects the corporation to be profitable each year, with all profits reinvested excepted to the extent needed to pay corporate taxes or shareholder taxes on profits. The shareholder's plan is to sell the business after six years for a substantial gain. The C corporation will qualify as a small business corporation under Sec. 1202. Applying the C Corporation Model and the Flow-Through Model
◦ the C corporation form will provide a greater return for the period of ownership if the stock is sold after the six years.
◦ the S corporation will provide the greater return for the period of ownership if the stock is sold after the six years.
◦ the S corporation will provide the greater return for the period of ownership if the stock is instead sold before five years.
◦ Both the C corporation form will provide a greater return for the period of ownership if the stock is sold after the six years and the S corporation will provide the greater return for the period of ownership if the stock is instead sold before five years are correct.
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