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2% Shareholder of a Sub-S


Guest Joe Vasko

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Guest Joe Vasko

If an employee of a Sub-S who is not a 2% shareholder enrolls in an FSA Plan at the beginning of the year, but then has the opportunity to become a 2% shareholder mid-year, how will this effect his eligibility for the Plan Year?

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Guest Compliance questioner

Have to disagree- the person should not participate at all.

IRC section 1372(B) states: For purposes of this section, the term "2 percent sharholder" mean any person who owns (or is considered as owning with the meaning of section 318) on *any* (emphasis added) day durthe the taxable year of the S corporation more than 2 percent of the outstanding stock of such corporation or stock posessing more than 2 percent of the total combined voting power of all stock of such corporation.

If the person is not sure, they should be prepared to have everything that was taken pre-tax to go back and have it taxed.

Mara

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