Sale of S Corporation Appears to Have Been Put in Hold Until IRS Rules Ineffective S Election Was Inadvertant, S Status Recognized
I’ve often run into CPAs when discussing S corporations and the various ways they can lose their S status who remark that, while that may be true, they’ve never seen the IRS actually revoke the corporation’s status on an exam, or even question the issue. While that may be true, the author notes that a lot of private letter ruling requests are paid for to correct issues that would have terminated the S status, but which the IRS had not become aware.
A major reason for this is noted explicitly in PLR 201935010.[1] The problem often arises when a buyer is interested in acquiring the business and during the review of the organization, the potential liability for taxes for prior years comes to light due to an issue that rendered the organization ineligible to have received or to have continued with S corporation status.
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