Lynn Nichols Federal Tax Update (Oct. 12, 2020): Ineffective S Corp Election
Welcome to the Federal Tax Update Podcast, hosted by Lynn Nichols. This is presented as a member benefit by the South Carolina Association of CPAs. It is produced to provide current information about developments in U.S. tax law, such as cases, ruling, IRS pronouncements and expert comments on hot topics.
The commentary is brief, and you should not take a position on the items discussed until you thoroughly examine it with authoritative sources. All topics can be found discussed in further length at Tax Notes Today.
“I have relied on Tax Analysts® to provide reliable and timely analysis of Federal tax developments for over 30 years. The ‘headnotes’ you see here are from ‘Tax Notes Today,’ the preeminent source of accurate information and analysis of important developments and trends in Federal taxation,” Nichols says.
The IRS ruled that a company will be treated as continuing to be an S corporation from the date of a possible inadvertently invalid subchapter S election; it will also be treated as continuing to be an S corporation from a later date on which the election was inadvertently terminated. [LTR 202040006; 6/15/2020, rel. 10/2/2020]
Nichols note: “This illustrates the IRS policy of generally being very lenient on process failures on S elections when it is obvious the parties intended to operate as an S corporation, but someone failed to complete the Form 2553 on time or failed to cross every ‘t’ and dot every ‘i’. That policy also extends to situations where, due to lack of knowledge about the law, an S election was terminated by a transfer of shares to a ‘wrong’ shareholder. S corporation rules are complicated, and the IRS is very forgiving when taxpayers make a mistake leading to unintended loss of S status. Tax professionals should know that we can ask for relief from strict compliance and normally get it.”
A divided Seventh Circuit affirmed a district court and held that a windfall elimination provision applied to dual Canadian-U.S. citizens to reduce their Social Security benefits, finding that they were not subject to Social Security taxes when they worked in Canada and that the reduction doesn’t violate the totalization agreement between Canada and the United States. [Lorraine Beeler et al. v. Andrew M. Saul et al.; CA 7, No. 19‐2099, 10/5/2020]
The IRS has issued a preliminary version of final regulations (T.D. 9926) that provide guidance related to the withholding of tax and information reporting regarding some dispositions of interests in partnerships engaged in a trade or business within the United States. [T.D. 9926 (prelim); 10/7/2020]
John, Helen, and Dimitrios Zourdos of Rome, New York, have been indicted on tax evasion charges for allegedly concealing over $1 million in cash sales from their Dippin Donuts stores from 2013 to 2017 by depositing the money into their personal accounts, the Justice Department said in an October 8 release. [20-1071; 10/8/2020]
A federal tax specialist for 50 years, Lynn Nichols provides tax consulting services to CPA firms on complex federal income tax issues, professional standards in tax practice and effective tax practice management. Check out his Tax Updates video playlist.