In addition to raising the number of permissible shareholders from 75 to 100, the American Jobs Creation Act also introduced the term “members of a family” to the world of Subchapter S taxation. The 2004 legislation had the effect of treating individual shareholders (including their spouses or former spouses) who were “members of a family” as a single shareholder for Subchapter S purposes. Which shareholders qualified as members of a family was determined by counting backwards up to six generations from the youngest generation of shareholders, as of a specified date, to determine what is called a “common ancestor.” All of those shareholders who were lineal descendants of this common ancestor qualified as members of a family.
