Refer to $$The Big Picture$$ at the beginning of Chapter $22$ of the textbook. Prepare a memo to the tax file of the client commenting on your response to the tax consequences and issues related to S corporation status.

Cane, has been a C corporation for a number of years, earning taxable income of less than $$100\mathrm{.}000$ per year. Thus, the business has been subject to the lower C corporations tax rates, but due to competitor's sales of cheap products from china. Cane's two owners, Smith and Jones, expect operating losses for the next two or three years. They hope to outsource some of the manufacturing to Vietnam and turn the company around. How can they deduct these anticipated future losses in the earliest tax years possible?

The corporation receives some tax$-$exempt income, generates a small amount of passive investment income, and holds some $.$C corporations earnings and profits. Each owner draws a salary of $$92,000.$ Cane has issued two classes of stock, voting and nonvoting common. Cane is located in Texarkana, Texas. Smith lives in Texas, and Jones lives in Arkansas. Both are married to Mexican citizens who live outside the United State.

Should Smith and jones elect to have Cane treated as an S corporation?.