Letter Rulings Not Needed for Some S Corp Election Requests

Letter Rulings Not Needed for Some S Corp Election Requests

Internal Revenue Service

The IRS has issued guidance (Rev. Proc. 2022-19, 2022-41 IRB 282) providing taxpayer assistance procedures to allow S corporations and their shareholders to resolve frequently encountered issues with certainty and without requesting a private letter ruling. The IRS identified issues as not affecting the validity or continuation of a corporation’s election under <a href="/research/federal/usc26/1362#cp63-0000002" resolve="/lr/resolve//cp63#cp63-0000002">section 1362(a)</a> to be treated as an S corporation or an S corporation’s election under <a href="/research/federal/usc26/1361#cqcs-0000022" resolve="/lr/resolve//cqcs#cqcs-0000022">section 1361(b)(3)(B)(ii)</a> to treat its corporate subsidiary as a qual­ified subchapter S subsidiary (QSub). The revenue procedure also provides retroactive corrective relief procedures under <a href="/research/federal/usc26/1362#cp63-0000072" resolve="/lr/resolve//cp63#cp63-0000072">section 1362(f)</a> to allow taxpayers to preserve S elections that are invalid or terminated solely as the result of one or more nonidentical governing provisions. The guidance further provides the areas in which the IRS will not rule, or will not ordinarily rule, regarding the validity or continuation of an S election or a QSub election. The aim of the guidance is to reduce burdens, facilitate increased compliance with S election and QSub election rules, and reduce costs and delays for completing transactions involving S corporations and QSubs. The six areas for which issues are resolvable without a letter ruling are: the one class of stock requirement and governing provisions, including “princi­pal purpose” conditions; disproportionate distributions; some inadvertent errors or omis­sions on Form 2553 or Form 8869; missing administrative acceptance letters for an S election or QSub election; federal income tax return filings inconsistent with an S election or a QSub election; and potential retroactive corrections of nonidentical governing provisions. The guidance details the areas in which a letter ruling will not ordinarily be issued, thus amplifying and modifying <a href="/lr/resolve//7cr9k">Rev. Proc. 2022-3</a>. Appendices to the revenue procedure provide a sample corporate governing provision statement and a sample shareholder statement. The revenue procedure, which includes a transition rule for pending letter ruling requests, is generally effective October 11, 2022. <a href="/lr/resolve//f69p">Rev. Proc. 2013-30</a> and portions of <a href="/lr/resolve//7cr9h">Rev. Proc. 2022-1</a> are amplified.

The IRS has issued guidance (Rev. Proc. 2022-19, 2022-41 IRB 282) providing taxpayer assistance procedures to allow S corporations and their shareholders to resolve frequently encountered issues with certainty and without requesting a private letter ruling.

The IRS has issued guidance (Rev. Proc. 2022-19, 2022-41 IRB 282) providing taxpayer assistance procedures to allow S corporations and their shareholders to resolve frequently encountered issues with certainty and without requesting a private letter ruling. The IRS identified issues as not affecting the validity or continuation of a corporation’s election under section 1362(a) to be treated as an S corporation or an S corporation’s election under section 1361(b)(3)(B)(ii) to treat its corporate subsidiary as a qual­ified subchapter S subsidiary (QSub). The revenue procedure also provides retroactive corrective relief procedures under section 1362(f) to allow taxpayers to preserve S elections that are invalid or terminated solely as the result of one or more nonidentical governing provisions. The guidance further provides the areas in which the IRS will not rule, or will not ordinarily rule, regarding the validity or continuation of an S election or a QSub election. The aim of the guidance is to reduce burdens, facilitate increased compliance with S election and QSub election rules, and reduce costs and delays for completing transactions involving S corporations and QSubs. The six areas for which issues are resolvable without a letter ruling are: the one class of stock requirement and governing provisions, including “princi­pal purpose” conditions; disproportionate distributions; some inadvertent errors or omis­sions on Form 2553 or Form 8869; missing administrative acceptance letters for an S election or QSub election; federal income tax return filings inconsistent with an S election or a QSub election; and potential retroactive corrections of nonidentical governing provisions. The guidance details the areas in which a letter ruling will not ordinarily be issued, thus amplifying and modifying Rev. Proc. 2022-3. Appendices to the revenue procedure provide a sample corporate governing provision statement and a sample shareholder statement. The revenue procedure, which includes a transition rule for pending letter ruling requests, is generally effective October 11, 2022. Rev. Proc. 2013-30 and portions of Rev. Proc. 2022-1 are amplified.

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Letter Rulings Not Needed for Some S Corp Election Requests