RSM has submitted comments to Treasury and the Internal Revenue Service regarding recently proposed regulations that will affect certain S corporations that revoked their subchapter S status following enactment of the Tax Cuts and Jobs Act. See our prior alert outlining key provisions in the proposed regulations.
The proposed regulations are generally favorable and would provide taxpayer-friendly distribution rules for eligible terminated S corporations (ETSCs). However, the proposed regulations as currently drafted could deny ETSC status to certain entities that experienced an ownership change prior to filing their subchapter S revocation requests. RSM recommends in the comment letter that Treasury and the IRS clarify the rules to provide that these entities qualify as ETSCs, and that their shareholders will also enjoy the benefits of ETSC status.