Under which subchapter of the Internal Revenue Code has Burros Fries elected to be taxed?

According to the 2024 Burros Fries FDD, the company has elected to be taxed under Subchapter S of the Internal Revenue Code. The financial statements included in Item 21 contain reports from an independent auditor regarding Burros & Fries Franchise, Inc. (an S Corporation).

For the year ended December 31, 2022, the company's provision for income taxes was $2,137, representing the statutory California S Corporation Franchise Tax of 1.5% applicable to S Corporations. For the year ended December 31, 2023, Burros Fries recognized an income tax benefit of $12,211 because the company made an S election for the 2021 tax year after initially providing for taxes at higher corporate rates.

An S corporation election allows Burros Fries to pass its income, losses, deductions, and credits through to its shareholders. The shareholders then report these items on their personal income tax returns and are assessed tax at their individual income tax rates. This can be advantageous compared to a traditional C corporation, which is subject to corporate income tax, and its shareholders are taxed again when they receive dividends. The S Corporation status may help Burros Fries reduce its overall tax burden, especially if the individual tax rates of its shareholders are lower than the corporate tax rate.