About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline

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

Manager in the Passthroughs Group
of the Washington National Tax
practice of KPMG.


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.


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


Charote North C

a pa st h of the
rnittee of the ABA s

What Is HeinOnline?

HeinOnline is a subscription-based resource containing nearly 3,000 academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.

Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline with pricing starting as low as $29.95

Contact us for annual subscription options:

Already a HeinOnline Subscriber?

profiles profiles most