IRS Issues Rev. Proc. 2022-19 to Provide Relief for S Corporations and their Shareholders

The IRS issued Rev. Proc. 2022-19, which provides simplified procedures for S corporations and their shareholders to resolve six frequently-encountered issues. For these issues, Rev. Proc. 2022-19 allows S corporations and their shareholders to obtain relief without requesting a private letter ruling (PLR). The IRS identified these issues as not affecting the validity or continuation of a corporation’s election to be treated as an S corporation or to treat its corporate subsidiary as a qualified subchapter S subsidiary (QSub).

The six key areas Rev. Proc. 2022-19 addresses are:

1. the one class of stock requirement and governing provisions, including “principal purpose” conditions;
2. disproportionate distributions;
3. certain inadvertent errors on or omissions from Forms 2553 (S election) or Form 8869 (QSub election), which Rev. Proc. 2013-130 and Rev. Proc. 2004-35 do not address;
4. missing administrative acceptance letters for an S election or QSub election;
5. federal income tax return filings inconsistent with an S election or a QSub election; and
6. potential retroactive corrections of nonidentical governing provisions (e.g., rights to distributions or liquidation proceeds that are not identical among shareholders).

Finally, Rev. Proc. 2022-19 details the areas in which the IRS will not ordinarily issue a PLR and, in doing so, amplifies and modifies Rev. Proc. 2022-3.

The appendices to Rev. Proc. 2022-19 provide a sample corporate governing provision statement and a sample shareholder statement. An officer and affected shareholders must complete and sign these statements to rely on Rev. Proc. 2022-19 for relief related to retroactive corrections of nonidentical governing provisions.

Rev. Proc. 2022-19 is effective October 11, 2022 and includes a transition rule for pending PLRs.

For more information on this Revenue Procedure, please contact Adam Smith, Brad Gould, the Tax Planning department’s attorneys at Comiter Singer at (561) 626-2101.