Proposed Revenue Ruling - Treatment of Noncapital, Nondeductible Expenses with Respect to an S Corporation Shareholder

When an S corporation has nondeductible items such as a portion of meal and entertainment expenses, the shareholders must reduce stock basis by the pro rata share of such expenses before reducing basis for deductible losses, thus effectively reducing basis available for deductible losses.   Generally, if non-deductibles reduce basis to zero, any remaining non-deductibles do not appear to carry over to future years to further reduce basis. This result seems to be different if an election is made to change the ordering rule for basis reduction so that deductible expenses reduce basis first.  Reducing basis by prior-year non-deductibles seems to be the trade-off required to potentially offset the benefit of the election.  Our proposed revenue ruling requests that the IRS make this treatment official.  Practitioners should be careful to consider non-deductible items when advising clients regarding the ordering election. Learn More>>

Proposed Revenue Ruling - Trusts shouldn't need ESBT or QSST Elections for Corporation to meet Golden Parachute Exemption for Small Businesses

A deduction is disallowed for excess Golden Parachute payments. But a small business exemption is available for corporations that meet a modified definition in the S corp rules of section 1361(b). The Service has previously ruled that to be a small business corporation for purposes of section 280G’s Golden Parachute regime, an election under Subchapter S is not required. A question remains about whether the exemption applies where the corporation is owned by trusts that otherwise meet the 1361(b)(1)(B) shareholder requirement except that they do not have an ESBT or a QSST election in place. We have asked the IRS to rule that the failure to make such election, impossible where the corporation is not an S corporation, will not remove the corporation from the small business corporation exemption. Learn More>>

AICPA Comments on Proposed Regulations Governing the Reduction of Tax Attributes for S Corporations that Exclude Discharge of Indebtedness under Section 108(b)
When an S corporation’s debt is forgiven and income is deferred under section 108, NOLs, carryovers, and basis are among the items that must be reduced.  The proposed regulations indicate the method of attribute reduction.  The AICPA has commented that a number of changes and clarifications need to be made. Learn More>>

AICPA Proposed Exceptions to the Failure to File Penalty for S Corporation Returns
Recently enacted Section 6699 imposes an $85 per shareholder penalty on an S corporation that fails to timely file a return or fails to show required information.  The statue has an exception for reasonable cause.  The AICPA has asked that most S Corporations with no entity level tax liability and whose shareholders have timely filed and fully reported their shares of the S corporation’s items, be considered to have met the reasonable cause exception. Learn More>>

AICPA Proposes Revenue Ruling on S Corp Shareholder Health Insurance Deductions

December 27, 2006. Is a shareholder-employee of an S corporation allowed an above-the-line deduction under section 162(l) of the Internal Revenue Code for health insurance premiums paid with respect to a policy purchased in the shareholder's own name? The AICPA has issued a response to IRS Headliner Volume 163, published on the IRS Web site on May 15, 2006. Learn More>>

AICPA Comments on Proposed Open Account Debt Regs

September 6, 2007. In response to the 2005 Brooks Tax Court case ruling that taxpayers had valid open account debt even though large advances were made at year end only to be repaid in the first few days of the new year (taxpayers repeated this process for several consecutive years), the IRS proposed regulations severely limiting the use of open account debt and burdening all S corporations with daily monitoring obligations because it believes that the Brooks case is an example of how the rules are being severely abused. The AICPA has asked that the rules be withdrawn or at least significantly modified. Learn More>>