Current developments in S corporations

Rev. Proc. 2013-30 permits a service center to deal with a request for inadvertent ineffective election or inadvertent termination relief if the sole cause for ineligibility is the failure of the parties to file a late qualified Subchapter S trust (QSST) or electing small business trust (ESBT) elect...

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Bibliographic Details
Published in:The Tax Adviser 2024-07, Vol.55 (7), p.22-34
Main Authors: Jamison, Robert W., Jr, Keller, Robert S, Mitchell, Kirk T, Nitti, Tony, Orbach, Kenneth N, Walsh, Kevin J
Format: Magazinearticle
Language:English
Subjects:
Bankruptcy
C corporations
Electing Small Business Trust
Fees & charges
Passive activity
Qualified subchapter S trusts
Revenue procedures & rulings
S corporations
Service centers
Small business
Stockholders
Surveys
Tax courts
Tax elections
Tax law
Tax returns
Taxation
User fees
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Summary:Rev. Proc. 2013-30 permits a service center to deal with a request for inadvertent ineffective election or inadvertent termination relief if the sole cause for ineligibility is the failure of the parties to file a late qualified Subchapter S trust (QSST) or electing small business trust (ESBT) election. In case of a QSST, the beneficiary must file the election that permits the trust to be eligible within the specified period.3 The trustee is the proper party for filing the ESBT election.4 Rev. Proc. 2013-30 permits the proper party to file one of these trust elections with the service center if fewer than three years plus 75 days have elapsed from the date the trust needed to qualify.5 Since publication of the last S Corporation update in the July 2023 issue of The Tax Adviser,b the IRS has issued approximately 30 letter rulings granting relief for failure to file timely trust elections.7 The logical inference is that the persons involved had failed to notice the problem and take corrective action within three years after the trust acquired the stock. Citing numerous other cases on this subject, and after providing a short course in logic as applied to a tax election, the district court held that the S election was property of the bankruptcy estate. In Fry, the Tax Court held that, notwithstanding that two S corporations that were wholly owned by Thomas Fry recorded certain transfers as open account indebtedness on tax returns for several years, the amounts were not debt but rather deemed distributions from one S corporation, Crown Disposal Inc. (Crown), and contributions to a second, commonly controlled S corporation, CR Maintenance Services Inc. (Maintenance).9 The Frys were assessed a deficiency for underpayment of tax and accuracy and late-payment penalties related to their untimely filed 2013 individual income tax return.
ISSN:0039-9957