New Procedures to Resolve S Corporation and QSub Election

The IRS has released taxpayer assistance procedures to allow S corporations and their shareholders to resolve frequently encountered issues without requesting a private letter ruling (PLR).

Correcting S Corporation & QSub Election Issues

The new procedure addresses issues that generally do not affect the validity or continuation of an S corporation election, or of an election to treat a S corporation subsidiary as a qualified subchapter S subsidiary (QSub). It also provides corrective relief procedures so taxpayers in some situations can  retroactively preserve S elections that are invalid or terminated solely because of certain non-identical governing provisions. A non-identical governing provision is one that, on its own or as part of another governing provision, results in the S corporation having more than one class of stock and, therefore, losing its eligibility to be an S corporation.

The IRS will no longer issue PLRs with respect to certain principal purpose determinations regarding the one class of stock requirement, or comfort rulings regarding certain S corporation and QSub election issues.

Effective Date

The new procedure is generally effective on the date it is published in the Internal Revenue Bulletin.

Under a transition rule, if a taxpayer has a request for a PLR regarding a non-identical governing provision that is postmarked (or if not mailed, received by the IRS) after the procedure is published, the taxpayer has 45 days to notify the Associate Chief Counsel (Passthroughs and Special Industries) of its decision to either:

  • Rely on this new procedure, withdraw the pending PLR request, and receive a refund of the associated user fee
  • Continue to pursue the pending PLR request.

A taxpayer that fails to notify the IRS is deemed to choose to continue to pursue its pending PLR request.

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