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TAX CLINIC

require a difference in the timing of
the distributions.
It is important to highlight the recent release
Inadvertent errors or omissions of Rev. Proc. 2022-19, which allows taxpayers
on Form 2553 or Form 8869 to self-correct nonidentical governing
An inadvertent error or omission on
Form 2553 or Form 8869 does not provisions if certain requirements can be met.
invalidate an S election or a QSub
election unless the error or omission is
with respect to a shareholder consent, administrative item that does not af- From Jeff Alberty, CPA, J.D., Denver,
a selection of a permitted year (as fect the election. A new letter can be and Jennifer Frost, Esq., J.D., LL.M.,
defined in Sec. 1378(b) and Regs. Sec. requested by calling the IRS. Washington, D.C.
1.1378-1(b)), or an officer’s signature. A letter ruling is not available with
Guidance is already available to cor- regard to any missing administrative The ‘one class of stock’
rect each of these specified errors if acceptance letter. requirement: An interesting
certain requirements can be met. If letter ruling
the requirements cannot be met, then Federal income tax return filing On June 1, 2018, the IRS released
the taxpayer can request a letter ruling. inconsistent with election Letter Ruling 201822003, granting
Rev. Proc. 2022-19 provides a method Rev. Proc. 2022-19 verifies that filing an LLC relief from an inadvertently
to correct errors that are not among the an incorrect income tax return (e.g., terminated S election. The company’s
items specified. While the revenue pro- Form 1065, U.S. Return of Partnership operating agreement had created a sec-
cedure does not provide examples, this Income, or Form 1120, U.S. Corpora- ond class of stock, making the company
will likely include relief for an incorrect tion Income Tax Return) inconsistent ineligible to be an S corporation. While
address, incorporation date, or state of with an S or QSub election does not by the relief would generally be expected
incorporation. It is unclear whether itself terminate the validity of the S or under the facts here, the letter ruling is
an incorrect employer identification QSub election. The revenue procedure unusual because it suggests that facts
number or entity name would be a provides that the taxpayer must file a and circumstances outside the four
correctible error, but it might be, if the federal income tax return for open tax corners of an S corporation’s governing
Form 2553 is otherwise clear regarding years consistent with its status. (Note provisions can be considered in deter-
to which entity the election relates. that, depending upon the type or return mining if a second class of stock exists.
To perfect the Form 2553 or Form filed and the facts and circumstances To understand the issue, a chronol-
8869, the taxpayer must write to an surrounding the filing, the statute of ogy of events is necessary. The redacted
IRS service center explaining the limitation may not have started.) letter ruling provides that on date 1 a
error(s) or omission(s) and the neces- The IRS will not issue a letter rul- single-member LLC was formed with
sary correction(s). Note that Rev. Proc. ing to address any inconsistent return an operating agreement (Agreement 1)
2022-19 provides specific addresses filing. This raises concerns about how that provided for allocating the items
where the request should be mailed, to perfect the entity’s records with an of “profits, losses and distributions to
which differ from where a Form 2553 inconsistent tax filing in closed stat- Members in proportion to their relative
or Form 8869 is currently filed. ute years. The IRS provides that the Membership interests.” The LLC then
corporation’s distributions and other made an S election effective date 2.
Missing administrative transactions will be treated as consis- On date 3, Agreement 1 was re-
acceptance letter for S election tent with its status as an S corporation placed by Agreement 2. Agreement 2
or QSub election or a QSub, as appropriate. Thus, a provided for differing distribution and
When a taxpayer files Form 2553 QSub’s income or deductions will be liquidation rights among units, based
for an S election or Form 8869 for a treated as income or deductions of the upon the member’s capital accounts
QSub election, the IRS will provide parent S corporation, and distributions that were computed using Secs. 754,
a written acknowledgment of its ac- between the QSub and its parent will 704(b), and 704(c).
ceptance (CP261 for an S election; be disregarded. However, there may Not until date 4 did a second
for a QSub election, CP279 to the be additional technical issues that will shareholder acquire an interest in the
parent and CP279A to the subsidiary). need to be resolved, depending upon S corporation. On date 5, Agreement
The written acknowledgment is an the facts and circumstances. 2 was replaced with Agreement 3,

22 February 2023 The Tax Adviser