Federal Income Tax – HW W3

The central concept learned during week three was the formation and operation of the S
corporations. Some corporations are treated like partnerships where they fill out tax returns but do
not take part in paying taxes directly. An S corporation must meet certain conditions. One of the
requirements is that there should be no more than 100 shareholders. Also, all the shareholders in
the corporation should be individuals. Also, the distribution of shareholders is nontaxable to the
extent of the accumulated adjustment account (AAA). The main aim is to reduce the AAA and the
basis of shareholder’s stock. 
My experience with the week three concept was interesting as I was in a position to
understand the lessons adequately. The class questions on S corporations provided a further
elaboration of the idea. I had some challenges in understanding some of the deductions that are
not allowed in S corporation. However, from the questions, I was able to identify several
deductions that are not permitted in S corporations. More so, the issues in week three content
gave me a clear picture of some of the differences between voting stocks and nonvoting stocks in
S corporations. 
The business income that is commonly referred to as ordinary business income includes
the revenues and expenses which do not flow through items. Such is because there does not
require specialized tax treatment like the capital gains, nor do they have any form of limitations.
Thus, I would like to ask the following questions

1. Why are such deductions not subjected to any restriction on the deductibility of charitable
   contributions?
2. Why is income on the interest treated as a flow-through item?