S corporations updated

Section 1362(f) permits the IRS to ignore a terminating event if certain conditions are met: 1. The IRS must agree that the termination was inadvertent; 2. Steps must be taken to correct the situation within a reasonable time after discovering the terminating event; and 3. The corporation and all shareholders must agree to make corrective adjustments required by the IRS consistent with treatment of the corporation as an S corporation. The IRS has been very reasonable when issuing private letter rulings concerning inadvertent termination status. In Ltr. Rul. 201046005, the IRS granted inadvertent termination status when an S corporation inadvertently issued shares to an IRA, an ineligible shareholder. In two recent cases, the Tax Court held that petitioners failed to establish that they met the 750-hour requirement to qualify as a real estate professional. In the R. Broz case, the Tax Court held that shareholders did not have sufficient basis in their S corporation stock when payments were made to their S corporation with loan proceeds from a bank loan. Petitioners claimed that these were part of a back-to-back loan arrangement.