AICPA Sends Recommendations for Clarification and Expansion of Certain Provisions of Rev Proc. 2022-19

The American Institute of CPAs (AICPA) has sent a letter to the Department of the Treasury and the Internal Revenue Service (IRS) to offer recommendations to clarify and expand certain provisions of Rev. Proc. 2022-19 to increase its utility and widen its scope.

Rev. Proc. 2022-19 provides:

Taxpayer assistance procedures, including under section 1362(f), to allow S corporations and their shareholders to resolve frequently encountered issues with certainty and without requesting a private letter ruling (PLR) from the IRS.
New opportunity for taxpayers to retroactively address situations in which they may discover an inadvertent occurrence of a “non-identical” governing provision, and thus a potential second class of stock, without the taxpayer requiring a PLR.

Section 3.06 of the Rev. Proc. provides, among other requirements:

For an S corporation to be eligible for relief for non-identical governing provisions, it must not have made, or must not have been deemed to have made, a disproportionate distribution. For many S corporations, this could be a limiting requirement to access the relief afforded under Section 3.06.

The AICPA’s recommendations the following:

Treasury and the IRS modify Section 3.06(2)(b)(ii) of Rev. Proc. 2022-19 to provide that only disproportionate distributions made pursuant to a non-identical governing provision disqualify the corporation from relief under Section 3.06.
Treasury and the IRS amplify Section 3.02 of Rev. Proc. 2022-19 to provide the factors that determine an arrangement relating to the distributions of an S corporation which constitute a governing provision under Treas. Reg. § 1.1361-1(l)(2)(i) and applicable law.
Examples are provided of arrangements that have and have not been determined to constitute a governing provision under applicable law.

“Revenue Procedure 2022-19 provided much needed guidance and relief for S corporations which inadvertently terminate their S election,” said Jon Williamson, Senior Manager – AICPA Tax Policy & Advocacy. “AICPA’s comments aim to broaden the scope and applicability of the relief contained within the Revenue Procedure and provide additional clarity.”