The American Institute of CPAs (AICPA) has sent a letter to the Department of the Treasury and the Internal Revenue Service (IRS) to offer recommendations to clarify and expand certain provisions of Rev. Proc. 2022-19 to increase its utility and widen its scope.
Rev. Proc. 2022-19 provides:
- Taxpayer assistance procedures, including under section 1362(f), to allow S corporations and their shareholders to resolve frequently encountered issues with certainty and without requesting a private letter ruling (PLR) from the IRS.
- New opportunity for taxpayers to retroactively address situations in which they may discover an inadvertent occurrence of a “non-identical” governing provision, and thus a potential second class of stock, without the taxpayer requiring a PLR.
Section 3.06 of the Rev. Proc. provides, among other requirements:
- For an S corporation to be eligible for relief for non-identical governing provisions, it must not have made, or must not have been deemed to have made, a disproportionate distribution. For many S corporations, this could be a limiting requirement to access the relief afforded under Section 3.06.
The AICPA’s recommendations the following:
- Treasury and the IRS modify Section 3.06(2)(b)(ii) of Rev. Proc. 2022-19 to provide that only disproportionate distributions made pursuant to a non-identical governing provision disqualify the corporation from relief under Section 3.06.
- Treasury and the IRS amplify Section 3.02 of Rev. Proc. 2022-19 to provide the factors that determine an arrangement relating to the distributions of an S corporation which constitute a governing provision under Treas. Reg. § 1.1361-1(l)(2)(i) and applicable law.
- Examples are provided of arrangements that have and have not been determined to constitute a governing provision under applicable law.
“Revenue Procedure 2022-19 provided much needed guidance and relief for S corporations which inadvertently terminate their S election,” said Jon Williamson, Senior Manager – AICPA Tax Policy & Advocacy. “AICPA’s comments aim to broaden the scope and applicability of the relief contained within the Revenue Procedure and provide additional clarity.”
Sign in to get access to this free resource, and all of our whitepapers and reports.
Download this content today!
Register Now Already registered? Click here to Log In
