Part b says, assume Nicholas, Michael, and Emily recruit 97 U.S.
resident shareholders.
Also assume Nicholas gave some of his shares to his grandfather and
grandmother such that there are now 102 shareholders.
Marley is no longer a shareholder.
And again the question is, is Sunchaser eligible to make a Subchapter S election?
So let's draw a quick figure just to make sure we understand what's going on.
We have Nicholas, Michael and Emily as well as 97 others that they've recruited,
totalling 100 shareholders.
In addition we're told that Nicholas gave some of his shares to his grandfather and
his grandmother, which is where the 102 shareholder number comes from.
And so the question is whether or
not Sunchaser is now eligible to elect Subchapter S.
Obviously one of the key considerations is that there's not more than 100
shareholders which is the restriction imposed on the Subchapter S election.
However, under the family attribution rules in section 318, Nicholas,
his grandfather and his grandmother, are viewed as one shareholder,
because we're looking at descendants of common ancestors.
So in other words, Nicholas, his grandfather, and
his grandmother are all viewed to be the same for this purpose.
In other words, we only have 100 shareholders.
Thus in this situation, Sunchaser is eligible.