The American Institute of CPAs sent a list of recommendations to the Treasury Department and the Internal Revenue Service asking them to clarify and expand some of their guidance on taxpayer assistance procedures and when S corporations don’t need to ask for private letter rulings to keep their status.
The recommendations come in response to Revenue Procedure 2022-19, which the IRS issued last year to allow S corporations and their shareholders to resolve frequently encountered issues with certainty and without requesting a private letter ruling issued by the IRS.
“Revenue Procedure 2022-19 provided much-needed guidance and relief for S corporations which inadvertently terminate their S election,” said Jon Williamson, senior manager of tax policy and advocacy at the AICPA, in a statement Wednesday. “AICPA’s comments aim to broaden the scope and applicability of the relief contained within the revenue procedure and provide additional clarity.”
In 2017, an IRS official reportedly said at a tax conference that the agency would stop issuing private letter rulings in several areas due to resource constraints, including S corps that have made disproportionate distributions, when an S corp has a bad return filing and when an S corp election or consent is filed with missing or incomplete information.
Rev. Proc. 2022-19 provides taxpayer assistance procedures to allow S corps and their shareholders to resolve frequently encountered issues with certainty and without requesting a PLR from the IRS. It also covers other topics, such as opportunities for taxpayers to retroactively address situations in which they might discover an inadvertent occurrence of a “non-identical” governing provision, and thus a potential second class of stock, without the taxpayer requiring a PLR.
For an S corp 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 corps, the AICPA noted, this could be a limiting requirement to access the relief.
The institute recommended the Treasury and the IRS modify the guidance to say that only disproportionate distributions made under a non-identical governing provision disqualify the corporation from relief under Section 3.06 of the revenue procedure. It also wants the Treasury and the IRS to amplify Section 3.02 to provide the factors that determine an arrangement relating to the distributions of an S corporation which constitute a governing provision under Treas. Reg. Sec. 1.1361-1(l)(2)(i) and applicable laws. The AICPA provided some examples of arrangements that have and haven’t been determined to constitute a governing provision under the law.