The San Diego Bay Boat Storage and Marina Corporation (Bay) was formed in 1999 as a C corporation and had substantial accumulated earnings and profits. Bays business consists of three primary activities. About one-third of Bays gross receipts are derived from marine service and repair work conducted by its two mechanics. Another one-third of Bays total receipts come from the rental of berths to boat owners. Berthing fees vary depending upon the size of the particular boat. A boat owner renting a berth from Bay must pay a separate charge to have Bays employees launch or haul out his boat. However, if given advance notice, Bay employees will fuel an owners boat, charging only for the fuel. The remainder of bays receipts come from dry storage of boats. Owners pay $200 per month for dry storage in Bays warehouse where a Bay employee is on duty 24 hours a day. For this fee, Bay employees will launch, fuel (with a charge for fuel) and haul out the boat whenever requested by the owner. Bays mechanics also will perform a free engine analysis every other year for owners of power boats in dry storage.

Bay is considering the possibility of making a Subchapter S election and has requested your advice concerning any problems which it may have. What difference would it make if Bay were a newly formed corporation?