S-Corp change in ownership percentage

Thank you Phoebe. She is actually the one who runs the business (actually she runs two). Because she is wife of only other shareholder/member, do you think she would still qualify without having to change actual ownership of shares, by gifting or other means? (I guess maybe I'm getting stuck on the husband/wife = 1 when determining that S-Corp does not have more than 100 shareholders).

I'd say she probably needs to pick up an extra percent of ownership.  Remember, tax treatment of shareholders is not the same thing as shareholder treatment from a legal perspective.  Just to be safe, I'd transfer some shares over to her, by whichever means that make sense.

 If she needs to own 51% of the shares, she needs to own them.  Deemed ownership for tax attribution rules are only relevant to tax, not to other stuff.