Washington, D.C. (April 5, 2023) – The American Institute of CPAs (AICPA) sent a letter to the Department of the Treasury and the Internal Revenue Service (IRS) to offer recommendations to clarify and expand certain provisions of Rev. Proc. 2022-19 to increase its utility and widen its scope.
Rev. Proc. 2022-19 provides:
Taxpayer assistance procedures, including under section 1362(f), to allow S corporations and their shareholders to resolve frequently encountered issues with certainty and without requesting a private letter ruling (PLR) from the IRS.
New opportunity for taxpayers to retroactively address situations in which they may discover an inadvertent occurrence of a “non-identical” governing provision, and thus a potential second class of stock, without the taxpayer requiring a PLR.
Section 3.06 of the Rev. Proc. provides, among other requirements:
For an S corporation 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 corporations, this could be a limiting requirement to access the relief afforded under Section 3.06.
The AICPA’s recommendations the following:
Treasury and the IRS modify Section 3.06(2)(b)(ii) of Rev. Proc. 2022-19 to provide that only disproportionate distributions made pursuant to a non-identical governing provision disqualify the corporation from relief under Section 3.06.
Treasury and the IRS amplify Section 3.02 of Rev. Proc. 2022-19 to provide the factors that determine an arrangement relating to the distributions of an S corporation which constitute a governing provision under Treas. Reg. § 1.1361-1(l)(2)(i) and applicable law.
Examples are provided of arrangements that have and have not been determined to constitute a governing provision under applicable law.
“Revenue Procedure 2022-19 provided much needed guidance and relief for S corporations which inadvertently terminate their S election,” said Jon Williamson, Senior Manager – AICPA Tax Policy & Advocacy. “AICPA’s comments aim to broaden the scope and applicability of the relief contained within the Revenue Procedure and provide additional clarity.”
About the American Institute of CPAs
The American Institute of CPAs® (AICPA®) is the world’s largest member association representing the CPA profession, with more than 421,000 members in the United States and worldwide, and a history of serving the public interest since 1887. AICPA members represent many areas of practice, including business and industry, public practice, government, education and consulting. AICPA sets ethical standards for its members and U.S. auditing standards for private companies, not-for-profit organizations, and federal, state and local governments. It develops and grades the Uniform CPA Examination, offers specialized credentials, builds the pipeline of future talent and drives continuing education to advance the vitality, relevance and quality of the profession.
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Contact: Veronica L. Vera
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Veronica.Vera@aicpa-cima.com