In a letter to the Department of the Treasury and the Internal Revenue Service (IRS), the American Institute of CPAs (AICPA) urged the establishment of a separate, lower user fee category for private letter ruling requests related to S corporations under section 1362(b)(5) and section 1362(f) that involve straightforward, low-complexity cases. These rulings are commonly requested to obtain relief from inadvertent S corporation election or compliance failures, including late or incomplete filings.
The AICPA’s letter proposes that Treasury and the IRS establish a separate user fee category for private letter rulings under section 1362(b)(5) and section 1362(f). Specifically, a separate category should be created for requests under section 1362(f) where the taxpayer cannot rely on Rev. Proc. 2013-30 solely because the three-year and seventy-five-day deadline has expired. The AICPA’s letter echoes concerns also raised in a 2016 AICPA comment letter recommending reduced user fees for these types of requests.
The AICPA believes establishing a separate user fee category is warranted for the following reasons:
- Section 1362(f) remains as the only source of relief for cases in which the sole failure to make an effective S corporation election or the sole reason for an inadvertent termination is the failure to timely make an electing small business trust electionor an election for a qualified subchapter S trust. Revenue Proc. 2013-30 is available only where relief is sought within three years and 75 days of the intended effective date of the election.
- Requests for relief under section 1362(f) are not “comfort” rulings. They are required to establish or preserve the S corporation status of the entity and are essential to taxpayers who must maintain their tax-favored status in response to an inadvertent trust-related election failure.
- While there was a recent increase in the small taxpayer gross income thresholds from $250,000 and $1 million to $400,000 and $10 million, it is expected that these new thresholds will subject small and closely held business taxpayers to the highest level of user fees.
“Creating a distinct category for these narrowly defined cases would better reflect the actual time and resources needed to process them,” said Michelle Zou, Senior Manager for Tax Policy & Advocacy with the AICPA. “Our letter’s recommendations would also align with the IRS’ guiding principles for determining user fees.”
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