An S corporation is a legal entity that pays no Federal corporate profits taxes. Instead, all of the earnings of S corporations are passed through to shareholders as taxable income, regardless of whether they are distributed as dividends or retained by the corporation. Double taxation of dividends is therefore avoided.

S corporations are included in the corporate sector in the national income and product accounts (NIPAs). The net income of S corporations is included in corporate profits, and their cash distributions are included in NIPA dividend measures. Source data on S corporations are provided to the BEA by the IRS as part of the corporate profits totals, but they are not reported separately by BEA.

S corporations have been a growing segment of the corporate sector. Profits of S corporations grew about fivefold between 1988 and 2003. In fiscal year 2008, the latest reporting year available from the IRS, their profits totaled about $242 billion and comprised about 27 percent of total corporate profits. There were 4,049,944 returns filed by S corporations that year (over half of the returns filed by corporations). Because of their rapid growth, S corporations have had an increasingly important impact on NIPA dividend measures. For more information, see BEA's FAQ "Why is the share of NIPA dividends to corporate profits much larger than the share of privately reported dividends to corporate profits?"