The American Recovery and Reinvestment Act of 2009 made a number of changes that affect S corporations, including a suspension for 2009 and 2010 of the Sec. 1374 builtin gains tax for S corporations in their eighth, ninth, or tenth year of the recognition period.
The 2008 Tax Extenders and AMT Relief Act extended to 2008 and 2009 the rule that the decrease in an S corporation shareholder’s stock basis for a charitable contribution of property by the S corporation is equal to the shareholder’s pro-rata share of the adjusted basis of the property.
The IRS issued final regulations on how the suspended losses of an S corporation are treated when a shareholder divorces and a portion of the shareholder’s shares in the S corporation are transferred to his or her ex-spouse.
The Mortgage Forgiveness Debt Relief Act of 2007 added a new penalty for S corporations that fail to timely file their returns or fail to provide information required on the return. The amount of the penalty is partially based on the number of shareholders in the corporation.
This two-part article discusses recent legislation, cases, rulings, regulations, and other developments in the S corporation area. Part I covers operational issues; part II, in the November issue, will cover S corporation eligibility, elections, and termination issues.
During the period of this S corporation tax update (July 9, 2008–July 9, 2009), the American Recovery and Reinvestment Act of 20091 (ARRA) had a direct impact on S corporation operations. The Tax Extenders and AMT Relief Act2 (TEARA) also had provisions that affect S corporations and their shareholders. Several regulations were issued giving guidance on the proper treatment for suspended losses and divorce as well as open account debt.
The potential zero capital gain rate for 2008 and 2009 continues to be an attractive tax planning tool that may affect S corporations and their shareholders’ behavior. The government has released preliminary information about the National Research Program regarding S corporations audited for tax years 2003 and 2004. The article first looks at tax planning opportunities related to appreciated S corporation stock.
Zero Capital Gains Rate in 2008 and 2009
Because the capital gains rate for individual taxpayers in the lower two tax brackets is zero in 2008 and 2009, many taxpayers are (or were) gifting appreciated S corporation stock to their children, grandchildren, or parents. In 2008, the tax law extended the kiddie tax to income (including capital gains and dividends) of 18-year-olds who do not provide more than half of their support and to 19- to 23-year-olds who are full-time students3 and do not provide more than half of their own support. Thus, the 0% tax rate generally will not be available to students through age 23 unless they have significant earned income or possibly trust fund income that contributes to their own support. This leads to a balancing act. Parents may hire a child to legitimately work for them and pay him or her enough to meet the 50% self-support test but not so much that they exceed the first two bracket limits ($33,950), including the capital gains generated. The parent will also lose the dependency exemption.
Example 1: Child C, age 22, is in graduate school and has $5,000 dividend income and $2,000 ordinary income from an S corporation, plus $10,000 earned income from summer work and from helping his parents with computer work in their business. His total support is $18,000. In February 2009, C’s parents give him stock worth $24,000, with a basis of $4,000 and a holding period of at least one year. He has a standard deduction and personal exemption that puts his 2009 taxable income in the first two tax brackets (i.e., under $33,950). Assuming that C sells the gifted stock in 2009, he will pay no tax (0% tax rate) on the $20,000 capital gain and the $5,000 dividend income, for a tax savings over his parents’ hypothetical tax on the dividend and capital gains of $3,750 ($25,000 × 15%).
Example 2: A retired married couple, A and B, defer pension distributions and invest primarily in tax-exempt bonds. They are living off the interest from those bonds. Their S corporation K-1 shows ordinary income of $40,000, and they receive distributions of $50,000 during the year. They have itemized deductions of $30,000. Their net ordinary income is $10,000 ($40,000 – $30,000). Therefore, if they recognized $200,000 in capital gains or dividend income through the S corporation or otherwise, $57,900 of the gain would be subject to a 0% tax rate. The other $142,100 would be subject to the normal 15% tax rate. This results in a federal tax savings of $8,700.
IRS Audit Rates and NRP Study
To put S corporations and their individual shareholders’ audit rates in perspective, it helps to see what other business entities’ audit rates are. During the audit period October 1, 2007–September 20, 2008, for C corporations with less than $10 million of assets, the audit rate was 1%, while those with more than $10 million of assets were audited 15.3% of the time. This is to be contrasted with S corporations and partnerships, which had a 0.4% audit rate. Individuals were audited 1% of the time (of which one-third were related to earned income tax credit issues and 77% were correspondence audits). Farm activity was audited at 0.6%. Schedule Cs with less than $25,000 in gross receipts were audited at 1.2%, those with $25,000–$100,000 at 1.9%, those with $100,000–200,000 at 3.8%, and those over $200,000 at 3.1%.
At a recent IRS Tax Research conference (July 8–9, 2009), the preliminary results of the National Research Program on S corporations were reported. The program audited 1,200 S corporations for tax year 2003 and 3,700 for tax year 2004. It found 12% underreporting for 2003 and 16% for 2004. It also discovered that small S corporations (defined as having less than $200,000 in assets) had a higher percentage of underreporting than large S corporations. It found that this underreporting mirrored the underreporting on Schedule Cs. The interesting question is whether the IRS will adjust small S audit rates to the Schedule C rates described above (1.2%– 3.8%), rather than the historically low S corporation audit rate of 0.4%.
American Recovery and Reinvestment Act of 2009 (ARRA)
Signed into law on February 17, 2009, ARRA affects S corporations and their shareholders in several ways. First, it extended the increased Sec. 179 deduction limits ($250,000/$800,000) to 2009. Second, it also extended the 50% bonus depreciation rules (Sec. 168(k)) to 2009.
Example 3: In 2009, X, an S corporation, places in service $600,000 of equipment with a five-year class life. X may pass through to its shareholders $250,0004 of Sec. 179 depreciation and $210,0005 of bonus and regular depreciation. Thus, the combination of Sec. 179, bonus depreciation, and MACRS results in 77% of the asset being expensed in the year placed in service. The shareholders would reflect their share of the $250,000 Sec. 179 deduction on their individual tax returns but would not have to count the $600,000 asset acquisitions for the $800,000 threshold limit. Note that the shareholders and X each must have sufficient trade or business income (including salary) to utilize their Sec. 179 amount.
Third, due to the economic problems that many companies are facing, Congress allowed regular tax and AMT net operating losses (NOLs) arising in tax years ending in 2008 to be carried back three, four, or five years if the taxpayer is eligible and so elects. To be an eligible small business, the business’s average gross receipts for 2008,6 2007, and 2006 must be less than $15 million. In the case of an S corporation and its shareholders, both must meet the eligible small business test. Note that gross receipts includes net sales (unreduced by cost of goods sold) tax-exempt income, cancellation of debt (COD) income, original issue discount, etc.
Fourth, Sec. 1374(d)(7) was enacted, which exempts for 2009 and 2010 Sec. 1374’s built-in gain (BIG) imposition if the S corporation is in its eighth, ninth, or tenth year of the recognition period. This will result in a significant cashflow savings for some S corporations and will require substantial tax planning from the tax adviser. For example, if an installment sale of BIG property occurred in a prior year, it may be advisable to recognize the gain in 2009 or 2010, assuming it qualifies as an eligible year. It may even be prudent to trigger the installment gain by using the installment note as collateral for a loan.
The AICPA’s S Corporation Technical Resource Panel is requesting clarification from Treasury on a number of issues related to this BIG holiday. For example, if the taxpayer’s net recognized built-in gain is limited by taxable income in its eighth recognition period year (2009) and in 2011 it is subject to BIG, is the 2009 suspended gain forgiven or subject to Sec. 1374 tax? In addition, there seems to be a difference in which years qualify as eighth, ninth, or tenth for Sec. 1374 as opposed to the carryover basis rules of Sec. 1374(d)(8). For the former, tax year seems to be the criterion. Thus, in switching from a C fiscal year to an S calendar year, a corporation may have had a short tax year. For the carryover basis provisions, the law seems to look to 12-month periods. Whether this is a drafting error or the intention of Congress remains to be seen.
Fifth, Sec. 108(i) was enacted to allow COD income normally recognized in 2009 or 2010 to be deferred to 2014, when it will be taxed over five years. This is available when the borrower or a party related to the borrower buys back the debt. The tax adviser must be aware of a variety of events that may trigger early recognition of the deferred gain, including passthrough entity owners’ sale of their interest. This may not be an optimal election if NOLs are available to offset the COD income. In addition, if the taxpayer is bankrupt, the COD income is not taxable, but if the taxpayer elects to postpone the gain under Sec. 108(i), it would be taxable. Unfortunately, there are many unanswered questions that will arise relative to this deferral, and the S Corporation Technical Resource Panel has asked Treasury to clarify many of these issues.
Sixth, private activity bond interest is exempt from AMT for bonds issued in 2009 and 2010, which may affect investment strategies of S corporations and their shareholders.
2008 Tax Extenders and AMT Relief Act (TEARA)
TEARA was signed into law on October 3, 2008, and has had a significant direct and indirect impact on S corporations and their shareholders.
Tax Preparer Penalty
Tax advisers are likely aware that for tax returns prepared after May 22, 2007, the substantial authority standard continues to apply, rather than the more-likely-than-not (MLTN) requirement for returns that are not considered tax shelters or that contain listed transactions. If the position is disclosed, the reasonable basis standard is sufficient to avoid penalties. Also note that the extension of tax preparer penalties to gift tax returns, estate tax returns, payroll taxes, etc., has not been repealed.
Research and Development Credit
Some S corporations are performing Sec. 174 R&D and are eligible for Sec. 41 R&D credits that would pass through to their shareholders. TEARA extended the R&D credit for 2008 and 2009 and repealed the alternative incremental credit for tax years beginning after December 31, 2008. For tax years ending after December 31, 2008, it also increased the simplified credit now being used by many taxpayers to 14% from 12%.
Superexpensing Provision Related to Movie/TV and Other Accelerated Depreciation Rules
In the past, the $15 million superexpensing provision of Sec. 181 was all or nothing. That is, if the cost of an otherwise qualified movie exceeded $15 million, nothing was allowed to be expensed under Sec. 181. Instead, the normal income forecast method depreciation rules would apply. TEARA instead allows $15 million of the costs of a qualifying movie to be expensed even if the aggregate costs of the movie exceed $15 million. Sec. 199 qualified wages will also now include loan-out payments.7 Many loan-out companies are established as S corporations to avoid the personal holding company rules applicable to C corporations. Loan-out companies are incorporated vehicles for talent to work for a movie or television production company.
TEARA also includes provisions that extend to 2008 and 2009 the expensing of environmental remediation costs8 and the 15-year amortization of qualified restaurant and leasehold improvements.9
Charitable Contribution of Appreciated Property and Stock Basis
The IRS issued Rev. Rul. 2008-1610 to clarify the adjustments to S stock basis for the contribution of appreciated property by an S corporation to a qualified charitable organization. Essentially, the treatment11 is that a shareholder’s adjusted basis in stock is increased by the appreciation embedded in the gifted property and is then reduced by the fair market value (FMV) of the property gifted (but not below zero). Originally, these rules applied only to 2006 and 2007,12 but TEARA extended their application to 2008 and 2009. It should be noted that the charitable contribution is still subject to Sec. 1366(d) limitations and Sec. 170 50% or 30% adjusted gross income limits.
Example 4: Y, an S corporation, is owned by B, its sole shareholder. B has an adjusted basis of $1,000 in Y stock. In 2009, Y contributes appreciated longterm capital gain property worth $500 with an adjusted basis of $200. The charitable gift will be reflected on Schedules K and K-1 and deductible on B’s individual tax return to the extent of the $500 FMV. The $1,000 adjusted basis in B’s stock will be reduced by $200 (the gifted property’s adjusted basis). Another way to view this transaction would be to increase adjusted basis by the appreciation in the gifted property to $1,300 ($1,000 + $300) and then reduce it by the FMV of the gift ($500) to $800.
Example 5: Assume the same facts as in Example 4, but B’s adjusted basis in Y stock is $150. After the charitable gift is reflected, his basis in the stock will be zero. B would have a $500 Sec. 170 deduction flow through to the individual tax return, but Sec. 1366(d) would limit his deduction to $450 ($150 basis + $300 appreciation), and $50 would be suspended until there was sufficient basis.
Example 6: Assume the same facts as in Example 4, but B’s basis in the S stock is $0. B currently deducts $300 (the appreciation) as a Sec. 170 expense. His adjusted basis in Y stock remains at zero, and he has a suspended $200 charitable contribution deduction.
Other S Corp. Current Operating Developments
Losses and Limitations
A major motivation for a corporation choosing S status is the ability to flow entity-level losses through to its shareholders. There are several hurdles that a shareholder must overcome before losses are deductible, including Sec. 183 (hobby loss), Sec. 1366 (adjusted basis), Sec. 465 (at risk), and Sec. 469 (passive activity loss) rules. Several regulations, court cases, and rulings were issued relative to these loss limitation rules.
Divorce and Suspended Losses
Final regulations13 were issued in August 2008 dealing with the appropriate treatment of a divorce where S corporation suspended losses exist. Basically, in the year of the divorce and the dividing of the S corporation shares per Sec. 1041, each party picks up his or her share of current- year activity, and the transferor gets all the suspended losses, if sufficient basis exists in the year of transfer. In the year after transfer, the suspended losses are split between the transferor and transferee by their respective ownership at the beginning of that year.
Example 7: A owns 100% of X Corp., an S corporation, in 2007. X has current and suspended losses of $100,000, and A has no basis in stock or debt. In 2008, X has a loss of $80,000, and in July A and B divorce and A transfers one-half of the X stock to B. B is entitled to $20,000 in losses (½ year × ½ stock × $80,000), and A is entitled to all the $100,000 suspended losses from 2007 and $60,000 of the current-year loss, subject to having sufficient basis for loss purposes. In 2009, X has a $70,000 loss. B would be entitled to $35,000 of the 2009 loss plus $50,000 of the suspended loss plus $20,000 of the 2008 loss. A would be entitled to a $35,000 2009 loss plus a $50,000 2007-andbefore suspended loss plus his $60,000 2008 loss.
Example 8: Assume the same facts as in Example 7, but A contributes $10,000 in 2008. Then he would be able to use current and suspended losses against his basis. Thus, $6,250 ($100,000 ÷ $160,000 × $10,000 basis) would be losses allocated to A from the suspended account and $3,750 ($60,000 ÷ 160,000 × $10,000) would be allocated to A from the current loss and be deductible to A at the individual level. Therefore, in 2009 B would be allocated half of the $93,750 suspended loss.
Open Account Loans
In October 2008, Treasury issued final regulations14 that are effective for debt created after October 20, 2008. Basically, open account debt that exceeds $25,000 per shareholder will be treated like notes. The amount owed will be measured at the corporation’s tax year end or when stock is sold. These regulations were issued in response to the Brooks case,15 which involved open account debt. In that case, two shareholders lent their S corporation money on open account so that at the end of any given year the shareholders had basis in the loans and could deduct the S corporation’s losses. However, because they always increased the loan by year end, no ordinary income was recognized on the repayment of the outstanding loan with a zero basis.
The IRS maintained that the debt repayments should be treated separately, like notes, so that the repayment resulted in income to the brothers at the time of the repayment, when the loan basis was zero. The court held that no income recognition was required because the loans were open advances.
Kerzner 16 is the most recent case addressing the back-to-back loan strategy among related parties. This case involved a round-tripper scenario in which a partnership lent money to an individual who lent money to the loss S corporation that paid the partnership rent.
No principal or interest on the notes was paid. The court held that this was not an economic outlay and therefore no Sec. 1366(d) basis for loss was created. The AICPA’s S Corporation Technical Resource Panel has submitted comments to Treasury encouraging a safe harbor for back-to-back loans with unrelated and related parties; hopefully this proposal will be included in proposed regulations to be issued before year end.
On July 8, 2009, the IRS issued Notice 2008-117 and Tax Resources for Small Businesses Issue No. 2009-14, which discusses S corporation stock and debt basis, reasonable compensation, and medical insurance that may be a useful secondary source for S corporation clients.
Penalties for Nontimely Filing of 1120S Tax Return Information
In what will probably be a surprise to many tax practitioners, the Mortgage Forgiveness Debt Relief Act of 200718 enacted a new provision that imposes a penalty of $85 per shareholder per month (not to exceed 12 months) if the S corporation does not timely file its corporate return or if it fails to provide information required on the return.19 The law is effective for 2007 1120S tax returns20 and is imposed on the S corporation. For returns required to be filed after December 31, 2008 (2008 Forms 1120S, U.S. Income Tax Return for an S Corporation), the penalty was raised to $8921 per shareholder per month. It counts husbands and wives as two shareholders; it counts the sale or gifting by one shareholder to another as two different shareholders. It is unclear how the provision would treat ownership in a community property state where actual ownership may be in one person’s name.
Example 9: H and W and their two children own all the stock of XYZ Corp. In October 2008, the two children gift some stock to their spouses. In 2009, the S corporation forgets to include the distribution amount on the 2008 1120S Schedules K and K-1. The S corporation could be liable for a penalty of $6,408 ($89 × 6 × 12) for this innocent mistake.
What is particularly disturbing about this provision is that, in the authors’ experience, rarely (if ever) is the date of distributions included on Schedule K and the related K-1s. Yet when one looks at Secs. 6037(a) and (b), this information is supposed to be reported to the government and the shareholders.
Built-in Gains (Sec. 1374)
ARRA has obviously reduced the stress and impact of Sec. 1374 for 2009 and 2010. Nonetheless, attention must be paid to this area of the law for its impact on past and future years and current years that are not in the eighth, ninth, or tenth year of the recognition period. In Letter Ruling 20092500522 the IRS ruled on a common situation in which a cash-basis personal service corporation converts from C to S status and has accrued salaries payable to both owner-employees and nonowner-employees. The ruling basically holds that a less than 5% shareholder and nonowners may be paid anytime during the recognition period and still qualify for a built-in loss deduction. The 5% or greater owners must be paid within 2½ months after the liability would be accrued.
Letter Ruling 20090900123 was a favorable ruling that dealt with an S corporation with some assets that had been held 10 years and others that had not. The S corporation put both groups of assets in an LLC and sold the LLC interest. The IRS ruled that there was no BIG on the sale of partnership interests related to the less-than-10-year held property. Similarly, Letter Ruling 20091003024 dealt with a converted S corporation that had converted exactly 10 years before and distributed appreciated stock and LLC interests to its shareholders. The ruling held that Sec. 311(b) gain recognition would be triggered but no Sec. 1374 tax would be due.
In MMC Corporation,25 a C corporation was required to make a Sec. 481 adjustment over multiple years. During those years, it converted from C to S status. The court held that the Sec. 481 adjustment was subject to Sec. 1374. Interestingly, a similar situation occurred with a bank that wanted to switch from C to S status, and Rev. Proc. 2008-1826 allowed the bank to include the full Sec. 481 adjustment in income of the last C year rather than in each of the S years. The bank needs to attach a Form 3115, Application for Change in Accounting Method, on the last C year’s return as well as on the first S year’s return to comply with the revenue procedure.
FIN 48 and Private Companies
The Financial Accounting Standards Board (FASB) had postponed the effective date of complying with FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, but has announced that it will be effective for private companies for periods beginning after December 29, 2008 (basically 2009 on). Generally, Statement of Financial Accounting Standards (FAS) No. 109, Accounting for Income Taxes, and FIN 48 would not affect S corporations because the tax liability is incurred at the shareholder level. However, if the company had federal or state corporate-level taxes such as Sec. 1374 BIG, it would be subject to these complicated rules. Note that the FASB has stated that private companies will have more limited disclosure requirements than public companies.
Banks and Sec. 291(a)(3)
When a corporation converts from C to S status, it needs to be aware of the impact of Sec. 291. This tax provision is a vestigial organ from the old corporate add-on minimum tax days, but it still applies today. For example, Sec. 291(a)(1) requires an S corporation that sells real estate within three years after converting to S status to characterize 20% of the lower of gain recognized or straight-line depreciation as ordinary income.
In Vainisi,27 the Tax Court held that Sec. 291(a)(3), which requires a 20% disallowance on interest expense related to tax-exempt income, applies to a qualified S subsidiary (QSub) bank even three years after conversion.
Beneficial Interest in an S Corp.
Klaas 28 involves a 100% shareholder of an S corporation where the entity sold an RV park but the owner did not want it taxed at the shareholder level. After the fact, the owner changed the order of events such that an offshore corporation was deemed to have sold the assets. The court held that the reality of the transaction was that the S corporation sold the property, and the shareholder had to include the gain in his taxable income.
Also in the past year, the Supreme Court denied certiorari in the Hightower 29 case, which dealt with beneficial ownership in an S corporation when there are disputes and disagreements between the shareholders. Hightower involved two 50-50 shareholders of a software S corporation with a serious dispute that led to Mr. Hightower’s being forced to resign as chairman of the board and losing management control of the company. The other shareholder offered and paid $47 million per the company’s buy-sell agreement. Even though Hightower still was fighting the arbitration decision in state court, he took the sales proceeds. The court ruled that Hightower was no longer a shareholder as of October 2000 when he surrendered his stock and accepted payment.
Dunne 30 involved a taxpayer who was the sole shareholder for most of an S corporation’s existence. For various reasons he brought in a 50% shareholder. After several years, they had disputes and disagreements about the future direction of the company. The two men discussed an informal agreement to sell Dunne’s interest in the S corporation in 1996, but they did not negotiate an agreement as to price or other terms at that time. In January 1997 Mr. Dunne rejected the price offered, and he continued to receive distributions and shared in the economic benefits and burdens of the S corporation. He also held himself out to be the 50% owner, secretary, and chairman of the board of the company. In early 1997 the other shareholder fired him as an employee, and in May 1997 they came to a formal agreement as to the buyout price, including a portion of the price determined by future revenue from a government contract for the fire extinguishing chemical Halon. Mr. Dunne continued to represent himself to third parties after the May 1997 agreement as an officer and owner of the company. The judge held that May 1997 was when the economic benefits and burdens of ownership were terminated and therefore only the K-1 income through May was taxable to Dunne.
The flexibility engendered by the QSub disregarded entity rules generated some merger and acquisition activity involving S corporations. In one of the more common scenarios, ruled on in Letter Ruling 200839017,31 an S corporation changed to an LLC and immediately checked the box to be treated as a corporation. The government ruled that this was an F reorganization. Similarly, Rev. Rul. 2009-1532 discusses the treatment of a partnership or LLC that checks the box or, under a state formless conversion statute, converts to corporate status and immediately elects S status. The ruling treats the partnership ownership as ending the day before the S year (December 31) and the S year as beginning with all qualified shareholders on January 1. Therefore, the S corporation status is established at its incorporation, and no C corporation year exists.
However, there are two issues that the tax adviser needs to be cognizant of. In either scenario (check the box or formless conversion statute), the ruling treats the partnership as transferring all the assets to the S corporation. If there were any non– bona fide liabilities transferred along with the assets, Sec. 357(b) would treat all the liabilities as boot and create a potentially large and unwanted recognized gain. The second issue is if a partner has negative partnership basis, the act of incorporating will trigger gain recognition. Thus, recognized gain will be triggered by the partner/shareholder being relieved of debt because the debt is not available under the corporate regime to allow basis for loss purposes.
Corporate division: Letter Ruling 20091500133 involves an S corporation with multiple QSubs, including some with significant foreign activities. A spinoff that would allow better credit ratings for one of the businesses was approved. Rev. Proc. 2009-2534 presents a pilot program that allows a rifle-shot approach to Sec. 355 or divisive D reorganization issues by allowing the IRS to opine on an issue or two without blessing the totality of the plan. Thus, issues for this pilot program might include whether a transaction meets the continuity-of-business enterprise criteria or a business is described in Sec. 355(b)(2)(C) (i.e., it was not acquired in a transaction in which gain or loss was recognized in whole or in part).
Stewart Karlinsky is a professor emeritus at San Jose State University in San Jose, CA, and a member of the AICPA Tax Division’s S Corporation Taxation Technical Resource Panel. Hughlene Burton is an associate professor in the Department of Accounting at the University of North Carolina–Charlotte in Charlotte, NC, and is the chair of the AICPA Tax Division’s Partnership Taxation Technical Resource Panel. For more information about this article, contact Dr. Karlinsky at firstname.lastname@example.org or Dr. Burton at email@example.com.
1 American Recovery and Reinvestment Act of 2009, P.L. 111-5.
2 Tax Extenders and AMT Relief Act, part of the Economic Stabilization Act of 2008, P.L. 110-343.
3 This assumes that the children aged 19–23 are not married. If they are, the new expanded kiddie tax will not apply.
4 Assuming sufficient taxable income at the S and shareholder levels.
5 $600,000 – $250,000 = $350,000 × 50% = $175,000; asset basis is now $175,000 × 20% MACRS rate = $35,000. $35,000 + $175,000 = $210,000; January 1, 2009, asset basis is $140,000.
6 See Rev. Proc. 2009-19, 2009-14 I.R.B. 747.
7 Sec. 199(b)(2)(D).
8 Sec. 198(h).
9 Secs. 168(e)(3)(E)(iv) and (v).
10 Rev. Rul. 2008-16, 2008-11 I.R.B. 585.
11 See Karlinsky and Brown, “S Corporations’ Charitable Contributions of Appreciated Property and Shareholders’ Adjusted Basis in S Stock,” 39 The Tax Adviser 183 (March 2008).
12 Pension Protection Act of 2006, P.L. 109-280, §1203.
13 Regs. Sec. 1.1366-2(a)(5).
14 T.D. 9428, amending Regs. Sec. 1.1367-2(a).
15 Brooks, T.C. Memo. 2005-204. For more on Brooks, see the previous S corporation current development articles: 37 The Tax Adviser 670 (November 2006); 38 The Tax Adviser 677 (November 2007); and 39 The Tax Adviser 682 (October 2008).
16 Kerzner, T.C. Memo. 2009-76
17 Notice 2008-1, 2008-2 I.R.B. 251.
18 Mortgage Forgiveness Debt Relief Act of 2007, P.L. 110-142.
19 Sec. 6699.
20 S corporation tax returns required to be filed after December 20, 2007.
21 Worker, Retiree, and Employer Recovery Act of 2008, P.L. 110-458, §128(a).
22 IRS Letter Ruling 200925005 (6/19/09).
23 IRS Letter Ruling 200909001 (2/27/09).
24 IRS Letter Ruling 200910030 (3/6/09).
25 MMC Corporation, No. 08-9002 (10th Cir. 1/15/09).
26 Rev. Proc. 2008-18, 2008-10 I.R.B. 573.
27 Vainisi, 132 T.C. No. 1 (2009).
28 Klaas, T.C. Memo. 2009-90.
29 Hightower, No. 06-73838 (9th Cir. 2/12/08), aff’g T.C. Memo. 2005-274, cert. denied, S. Ct. Dkt. 08-436 (U.S. 11/3/08).
30 Dunne, T.C. Memo. 2008-63.
31 IRS Letter Ruling 200839017 (9/26/08).
32 Rev. Rul. 2009-15, 2009-21 I.R.B. 1035.
33 IRS Letter Ruling 200915001 (4/10/09).
34 Rev. Proc. 2009-25, 2009-24 I.R.B. 1088.