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?