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20 J. Passthrough Entities 37 (2017)
The IRS Announces It Will No Longer Rule in Three Areas Involving S Corporations

handle is hein.journals/passtent20 and id is 223 raw text is: S Corporation Corner The IRS Announces It Will No Longer Rule in Three Areas Involving S Corporations By C. Wells Hall I/, Paul Kugler and Deanna Walton Harris* Ks a Partnerint > ,ffi c UcfNe Sa' OI LP at97 t,) Coni PAUL KUGLER is a Director in the Passthroughs Group of the Washington National Tax practice of KPMG. Prior to joining KPMG, he practiced for 28 years with the Chief Counsel's office of the IRS, his last position being Associate Chief Counsel (Passthroughs and Special Industries). DEANNA WALTON HARRIS is a Senior Manager in the Passthroughs Group of the Washington National Tax practice of KPMG. JULY-AUGUST 2017 On March 3, 2017, Brad Poston, Branch 3 Senior Counsel, IRS Office of Associate Chief Counsel (Passthroughs and Special Industries), an- nounced an informal no-rule position for certain types of Code Sec. 1362(f) relief often requested by S corporations (the Informal No-Rule Posi- tion).' Mr. Poston stated that, although resource constraints contributed to the decision to stop issuing the letter rulings, there is also doubt about the correct- ness and/or the value of some of the Code Sec. 1362(f) letter rulings that have been issued. Mr. Poston said the Informal No-Rule Position may expand as issues are raised that the IRS views as comfort rulings or rulings that do not provide protection to taxpayers. The announcement is informal in the sense that the IRS has not published anything indicating its unwillingness to rule on these issues. However, Mr. Poston stated that Ideally we would publish something that would set this all out. Presumably, that could happen through publication of a revenue procedure or the inclusion of the relevant issues in the annual no-rule revenue procedure (currently Rev. Proc. 2017-3). This column describes the three no-rule areas described by Mr. Poston as comprising the Informal No-Rule Position and a recent effort by practitioners to encourage the IRS to reduce the confusion and uncertainty caused by it. Two of the three areas relate to the one-class-of-stock requirement for S corporation eligibility-disproportionate distributions and where a principal purpose of the arrangement must be determined. The final no-ruling area involves late or in- complete elections and incorrect return filings. To understand the issues related to the no-rule areas, some background is necessary. Background The Subchapter S eligibility rules prohibit the issuance of more than one class of stock (i.e., stock that has a preference on distributions during either the op- erational or liquidation phase).' Under the regulations promulgated under Code Sec. 1361 (the Second Class of Stock Regulations), a corporation is treated as having only one class of stock if all outstanding shares of stock of the corporation confer identical rights to distribution and liquidation proceeds. In making the CO 2017 CCH INCORPORATED AND ITS AFFILIATES. ALL RIGHTS RESERVED. 37 C. WELLS HALL III Charote North C a pa st h of the rnittee of the ABA s

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