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TAX CLINIC

building is more energy-efficient. To
make this computation, the building’s S Corporations Generally, a
specific level of energy usage intensity
(EUI) before the retrofit is measured IRS provides guidance on corporation is treated
against the building’s EUI after the perfecting S elections and as having only one
retrofit to determine a percentage reduc- QSub elections
tion in annual energy usage. The same The IRS released Rev. Proc. 2022-19, class of stock if all
outstanding shares of
sliding scale described above is used which expands Rev. Proc. 2013-30
to determine the amount of incentive (providing a simplified method for tax- stock confer identical
allowed. The amount of this incentive payers to request relief for late elections
rights to distribution
is limited to the cost of the energy- by S corporations, qualified Subchapter
efficient property placed in service. S subsidiaries (QSubs), electing small and liquidation
Using the building’s own energy usage business trusts (ESBTs), and qualified
as a baseline helps taxpayers with older Subchapter S trusts (QSSTs)). Rev. proceeds.
buildings that cannot meet the contem- Proc. 2022-19 also amplifies Rev. Proc.
porary one-size-fits-all ASHRAE Stan- 2004-35 (providing automatic relief for S election that has governing provisions
dard 90.1 to qualify for a deduction. certain taxpayers requesting relief for more common to those of a partnership,
This alternative requires a “quali- late shareholder consents for S elec- such as distribution or liquidation rights
fied retrofit plan” that specifies the tions in community property states). based upon capital account balances
modifications to the building that are In addition, Rev. Proc. 2022-19 adds rather than pro rata among the shares
expected to reduce the building’s EUI certain no-rule areas with respect to of stock.
by 25% or more. No governmental IRS letter ruling requests, consistent Rev. Proc. 2022-19 provides a new
agency is required to review or approve with the guidance provided in the rev- method for relief for nonidentical gov-
the plan, although it must be certified enue procedure. erning provisions. To qualify for relief,
by a professional (e.g., an architect or The guidance focuses on six issues: the S corporation and its shareholders
engineer). Under this alternative, the (1) nonidentical governing provisions; must satisfy the following requirements:
Sec. 179D deduction is not taken when (2) principal-purpose determinations ■ The corporation has or had one
the property is placed in service but regarding the one-class-of-stock re- or more nonidentical governing
rather is allowed one year later, upon quirement; (3) disproportionate distri- provisions;
the completion of a “final certification” butions; (4) certain inadvertent errors ■ The corporation has not made, and
establishing the percentage reduction in or omissions on Form 2553, Election by for federal income tax purposes is not
annual energy usage. a Small Business Corporation, or Form deemed to have made, a dispropor-
8869, Qualified Subchapter S Subsidiary tionate distribution to an applicable
Expanded opportunity under Election; (5) missing administrative or shareholder;
Sec. 179D acceptance letters for an S or QSub ■ The corporation timely filed (defined
As this item shows, the Inflation Reduc- election; and (6) the requirement to file as filed within six months after its
tion Act’s modifications and new provi- returns consistent with an S election. original due date, excluding exten-
sions under Sec. 179D create additional sions) a return on Form 1120-S,
tax savings opportunities for taxpayers Self-help relief available for U.S. Income Tax Return for an S
that invest in energy-efficient building certain nonidentical governing Corporation, for each tax year of the
construction projects. As summarized provisions corporation, beginning with the tax
in the table “Sec. 179D — Current vs. The governing provisions of an S cor- year in which the first nonidentical
Prior Law,” these provisions broaden poration cannot provide for dispropor- governing provision was adopted and
the scope of taxpayers eligible for the tionate distribution or liquidation rights through the tax year immediately
deduction. It would be sensible for (i.e., nonidentical governing provisions) preceding the tax year in which the
taxpayers to evaluate the new rules among any shares of stock, or else the corporation made a request for
under Sec. 179D as part of their an- S corporation will have two classes corrective relief; and
nual tax planning to identify tax sav- of stock and will be ineligible to have ■ Before any nonidentical governing
ings opportunities. an S election (Regs. Sec. 1.1361-1(l)). provision is discovered by the IRS, all
From John Suttora, CPA, and Dennis This most often applies in the context of the requirements of the revenue
St. Martin, CPA, Washington, D.C. of a limited liability company with an procedure are satisfied.

20 February 2023 The Tax Adviser