Page 355 - TaxAdviser_2022

S CORPORATIONS

but less than $1 million, the user fee is stock on the date the corporation files its ruling or pay a user fee. Despite this,
$8,500.3 S election must consent to the election.5 Letter Ruling 202205018 requested re-
For an S corporation, the term “gross If there are joint owners of any block of lief for failure of a spouse to file a timely
income” for purposes of this test is total stock, all the owners must consent.6 The consent. The problem with the situation
income (line 6 on Form 1120-S, U.S. IRS, by regulation, has permitted late here was that there was no joint owner-
Income Tax Return for an S Corpora- consents if there is reasonable cause for ship. The corporation issued stock to one
tion), plus cost of goods sold (line 2). the delinquency. spouse, but the other spouse consented
The corporation must also include gross When the joint ownership is a result to the corporation’s S election. The IRS
rents reported on Form 8825, Rental Real of a community property law, Rev. Proc. treated the election as inadvertently inval-
Estate Income and Expenses of a Partnership 2004-35 allows the couple to file a state- id and granted the corporation’s election.
or an S Corporation. The period for testing ment with the service center where the
is the last full (12-month) tax year ending corporation files its returns.7 Unlike Rev. Sec. 1366: Passthrough of
before the date the request is filed. More- Proc. 2013-30, which deals with certain items to shareholders
over, if one shareholder owns more than late elections, there is no time limit on Sec. 1366 provides that shareholders
50% of the corporation’s stock, the corpo- the consent for the community interest include their ratable share of separately
ration must include the gross income of holder.8 Conceivably, the joint owner and nonseparately stated items for the
the shareholder.4 could have been required to consent to tax year on a per share, per day basis,
Consent to corporation’s S a Subchapter S election in the year 1958 whether or not any income is actu-
election: Letter Ruling 202205018 ad- and would still be within the domain ally distributed. Tax-exempt income
dressed a situation involving a spouse’s of Rev. Proc. 2004-35. Moreover, since is among the separately stated items.
failure to consent to an S election. Under the service center administers the relief, Generally, ordinary and necessary busi-
Sec. 1362(a)(2), each person who owns there is no need to apply for a letter ness expenses paid by the S corporation,

3. Rev. Proc. 2022-1, Appendix A, clause (A)(4). 6. Regs. Sec. 1.1362-6(b)(2)(i).
4. Rev. Proc. 2022-1, Appendix A, clauses (B)(4) and (5). 7. Rev. Proc. 2004-35.
5. Regs. Sec. 1.1362-6(b)(3), effective for tax years beginning after 1992 (T.D. 8. Rev. Proc. 2013-30 limits the period in which a service center can grant
8449, issued Nov. 24, 1992). relief to three years and 75 days from the effective date of the election.

EXECUTIVE SUMMARY • The Service issued a notice letter rulings requesting late
addressing whether a S corporation election relief.
• Three revenue procedures ad- majority owner’s (or spouse’s)
dressed the timing of tax-exempt compensation constitutes • The Tax Court ruled on how
income and corresponding basis qualified wages in calculating the to characterize the economic
inclusion from forgiven Paycheck employee retention credit. benefits of a split-dollar life
Protection Program loans. insurance arrangement.
• New final regulations provide In another case, the court
• With respect to the federal cap relief from classification as a addressed issues surrounding
on state and local tax deduc- syndicate, which can cause an S corporation distributions and
tions, the IRS issued a notice entity to lose its ability to use compensation for services of a
and announced that it intends to the cash method of accounting, shareholder.
propose regulations concerning among other things.
creditable passthrough entity
taxes that many states have • A recent revenue procedure
enacted. reduces the user fee for private

24 July 2022 The Tax Adviser