When will the IRS grant relief for an inadvertent termination of an S corporation election?

Article Abstract:

S corporations can terminate their S corporation tax status under IRC section 1361(b) in many ways such as having too many stockholders, creating a second class of stock and joining an affiliated group. However, the IRS may grant permission to regain the status if the termination was inadvertent, outside of the stockholders' control and not motivated by tax avoidance or retroactive tax planning. Normally, a terminated status cannot be regained until after five taxable years, but if a corporation corrects the event in a timely manner and agrees to IRS required adjustments, a waiver may be attained.

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One class of stock

Article Abstract:

Final regulations for IRC section 1361 on the single class of stock rule for S corporations are inadequate. There is insufficient guidance for loans, leases, options, commercial contracts and arrangements which create de facto second classes of stock. The final rules restate existing law for debt, voting rights, phantom stock and restricted stock. The main benefit of the final rules is for safe harbors for options and buy-sell agreements.

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Treasury issues replacement regs. on one class of stock

Article Abstract:

The Department of Treasury on Aug 8, 1991 issued new proposed regulations under sections 1361 and 1371 concerning the 'one class of stock' rule for Subchapter S corporations. The key provision bases definition of one class of stock on 'identical rights to distribution and liquidation proceeds.' The new regulations are an improvement over the ones issued on Oct 5, 1991, but still seem unnecessarily complicated.

United States. Department of the Treasury

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