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IRS Urged To Extend This Year's S Corp Election Deadline

by Mike Godfrey,, Washington

08 March 2018

The National Society of Accountants in the US has asked Internal Revenue Service Acting Commissioner David Kautter to extend the deadline for corporations to elect to be treated as an S corporation.

In a letter sent to Kautter on March 8, the NSA requested a six-month extension for the current calendar year.

The Tax Cuts and Jobs Act enacted in December of 2017 made substantial changes to the tax law as it relates to pass-through entities, including S corporations, with the introduction of a new Section 199A of the Internal Revenue Code on which guidance has yet to be released. This Section provides that S corporations will generally be entitled to a deduction for each taxable year equal to the sum of:

  • The lesser of (a) the taxpayer's "combined qualified business income amount;" or (b) 20 percent of the excess of the taxpayer's taxable income for the taxable year over any net capital gain plus the aggregate amount of qualified cooperative dividends; plus
  • The lesser of (a) 20 percent of the aggregate amount of the qualified cooperative dividends of the taxpayer for the taxable year; or (b) the taxpayer's taxable income (reduced by the net capital gain).

"Clearly, Section 199A is not only complex and confusing, but the effective tax rate can vary substantially depending on the definition of various terms [used] therein," said the NSA. "None of the terms used in Section 199A have been defined in any guidance issued by the IRS since the enactment of the provision. Nevertheless, NSA members as well as tax professionals across the country are being asked by clients to make our own interpretations of Section 199A, even as IRS and Treasury Department personnel have made numerous speeches acknowledging that the scope of this Section could change markedly depending on how official pronouncements choose to define some of the terms mentioned above."

The IRS has listed Section 199A as a priority in its Priority Guidance Plan, updated on February 7. However, the NSA pointed out that while priority guidance is expected by June 30, any entity that wishes to be treated as a S corporation for tax purposes for this calendar year must do so by March 15, even in the absence of such guidance.

"It strikes us that making an election in March when the guidance on which such election may be based will be issued in June is unfair to taxpayers, tax professionals, and the tax system itself," said the NSA. "Assuming the regulations under Section 199A are in fact issued by June 30, any entity considering making a S election should be given a six-month extension, until September 15, 2018, to do so. This extension would afford time for all affected parties, as well as their tax adviser, to read and understand any such regulations and how they may impact their tax liabilities.

TAGS: tax | business | law | professionals | United States | dividends | regulation | Tax

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