Termination of
the Election.
Orlando Corporation, a calendar year
taxpayer, has been an S corporation for several years. On July 10, 2009, Orlando
authorizes a second class of nonvoting preferred stock that pays a 10% annual
dividend. The corporation issues the stock to Sid on September 12, 2009, to
raise additional equity capital. Sid owns no other Orlando stock.

a. Does Orlando’s S election terminate? If so, when is the
termination effective?

b. What tax returns must Orlando file for 2009? When are they due?

c. How would your answer to Parts a and b change if instead the
second class of stock were nonvoting Class B common stock?

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