Rev. Rul. 66-218

An electing small business corporation, as defined in section 1371 of the Internal Revenue Code of 1954, adopted a profit-sharing plan intended to cover all full-time employees, including shareholders.

Although the undistributed taxable income of an electing small business corporation for any taxable year shall be included in the gross income of the shareholders of such corporation, no provision of Sub-chapter S prohibits such a corporation from adopting a plan intended to qualify under section 401(a) of the Code on the same basis as other corporations.

Held, where an electing small business corporation adopts a plan intended to qualify under section 401(a) of the Code, qualification will not be denied merely because shareholder-employees are eligible to participate.