Current developments.

This two-part article discusses recent legislation, cases, rulings, regulations and other developments in the S corporation area. Part I focuses on eligibility, election and termination issues.

EXECUTIVE SUMMARY

* New regulations allow an S election to also represent a check-the-box election.

* the AJCA made some important changes to the ESBT area.

* Rev. Rul. 2004-85 addressed the issue of when a QSub election terminates in a merger.

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Part I of this two-part article, below, discusses S eligibility, election and termination issues, including changes made by the American Jobs Creation of Act of 2004 (AJCA), a new regulation, revenue procedures that simplify the S election process and court cases on terminations. Part II, in the November 2005 issue, will address S operational issues, including several new temporary, final and proposed regulations covering the Sec. 1374 built-in gain rules, LIFO inventory recapture, tax shelters, loss limits, S employee stock ownership plans and reorganizations.

Eligibility, Elections and Terminations

The general definition of an S corporation includes restrictions on the type and number of shareholders, as well as the type of corporation, that may qualify for the election. If an S corporation violates any of these limits, its status is automatically terminated. However, the taxpayer can request an inadvertent termination ruling under Sec. 1362(f) and, subject to IRS approval, retain S status continuously. Congress had requested the IRS to be lenient in granting inadvertent election and termination relief, and the rulings presented below clearly indicate it adhered to Congress's intent.

Number of Shareholders

Under prior law, an S corporation could only have 75 shareholders. A husband and wife (and their estates) were treated as one shareholder. For tax years beginning after 2004, AJCA Section 232(a) increased the shareholder limit to 100; all family members are counted as one shareholder, if a family member so elects. A "family" consists of a common ancestor, and his or her lineal descendants and their spouses (and former spouses). The common ancestor can be no more than six generations removed from the youngest generation of family shareholders. Indirect ownership, such as a beneficiary of an electing small business trust (ESBT) or qualified Subchapter S trust (QSST), will also be included in the family headcount. Note: every family member who owns stock on the election date must consent to the S election. This rule change does not include nephews, nieces and cousins, as they are not lineal descendants.

An ESBT is an eligible S shareholder. One of the consistent problems with an ESBT is that all potential current beneficiaries (PCB) are counted as separate shareholders (i.e., any person potentially entitled to receive a distribution from the trust's principal or interest, including any person to whom a distribution is or may be made during a period pursuant to a power of appointment). As a result, the 100-person limit could easily be exceeded and the S election terminated. For years beginning after 2004, unexercised powers of appointment are ignored for PCB purposes under AJCA Section 234(a).The new law also extends the time during which an ESBT can dispose of S stock after an ineligible person becomes a PCB (and, thus, avoid S termination), from 60 days to one year.

Elections

Late elections: Several years ago, in an attempt to reduce the number of letter rulings in this area, the IRS issued Rev. Proc. 2003-43, (1) which grants S corporations, qualified subchapter S subsidiaries (QSubs), ESBTs and QSSTs a 24-month extension to file Form 2553, Election by a Small Business Corporation, Form 8869, Qualified Subchapter S Subsidiary Election, or a trust election, without obtaining a letter ruling. It appears that the procedure is having the desired effect; even though the IRS continues to receive a number of late-filing letter rulings, (2) the number decreased substantially this year. In all instances, the IRS allowed S status from inception under Sec. 1362(b)(5), as long as the taxpayer filed a valid Form 2553 within 60 days of the ruling.

In a number of these situations, (3) the corporate minutes reflected the company's desire to be an S corporation, and Form 1120-S, U.S. Income Tax Return for an S Corporation, had been filed, indicating that the corporation intended to be an S corporation. However, Form 2553 was not filed prior to the ruling request. In other rulings, (4) a lawyer, an accountant, a tax preparer or financial consultant failed to complete Form 2553, but the company filed Form 1120-S, and the shareholders included the income on their returns.

In an unusual situation, two corporations intended to be S corporations. (5) One properly filed Form 2553; the other did not. The two companies then merged; the company that had not properly filed Form 2553 survived. The Service determined that the resulting corporation qualified as an S corporation and allowed S status from inception.

In some situations, an entity is formed as either a limited liability company (LLC) or a limited liability partnership (LLP), but seeks S treatment. In this case, the entity must file Form 8832, Entity Classification Election, and Form 2553. In several instances, (6) an entity planned to file Form 8832, electing to be treated as a corporation, and then to file Form 2553, to be taxed as an S corporation. Neither election was filed. The Service granted these entities relief and allowed S status from inception, as long as the entity filed both forms within 60 days of the ruling.

Check-the-box: One of the most noteworthy changes this year is Temp. Regs. Sec. 301.7701-3T(c)(1)(v)(C), (7) which allows an S election to count as a proxy for a check-the-box election, thus simplifying the company's and tax adviser's paperwork. If Form 2553 was not filed timely, Rev. Proc. 2004-488 would give the corporation six months after the due date for the entity's return (excluding extensions) to file a properly completed From 2553 with the applicable IRS Service Center. If the Service determines that the requirements for granting additional time to file the elections are satisfied, the entity will be treated as having elected to be taxed as a corporation as of the S election's effective date.

Corporate Eligibility

Type of corporation: Sec. 1361 does not allow certain types of corporations to elect S status, including certain financial institutions, insurance companies, foreign corporations and corporations electing Sec. 936 status. Many small community banks were also prevented from electing S status because they were often owned by their directors' IRAs. AJCA Section 233 addressed this problem and now allows certain IRAs (including Roth IRKs) to be shareholders of a bank S corporation. However, this rule only applies to IRA ownership held on Oct. 22, 2004, and to no other type of S corporation. Under this provision, an IRA beneficiary is deemed the shareholder of the bank S corporation. Thus, the beneficiary, not the IRA, is the consenting authority for (1) the S election, (2) revocation of the S election, (3) rescission of a revocation and (4) the election not to allocate income on the pro-rata method during an S termination. (9)

One class of stock: Sec. 1361(b) (1)(D) prohibits an S corporation from having more than one class of stock, defined as equal rights to distributions and liquidations, but not necessarily equal voting rights. In a letter ruling, (10) an S corporation transferred stock to two individuals. A shareholder agreement that the company entered into with one of the individuals restricted that shareholder's rights to distributions, which may have created a second class of stock. When the issue came to the company's attention, the shareholder agreement was amended to eliminate the distribution restrictions. The Service determined that the old agreement may have created a second class of stock, which would have terminated the S election; however, the termination was inadvertent and the amended agreement did not create a second class of stock.

In another instance, (11) a company's operating agreement provided for distribution rights that may have created a second class of stock. When the company realized the problem, a new operating agreement, which provided for identical rights in distribution and liquidation, was adopted. Again, the Service determined the operating agreement created a second class of stock, which terminated the S election, but the termination was inadvertent.

Also, an S corporation issued preferred stock that provided for different distribution rights than its common stock. (12) However, all distributions were made on the basis of common stock ownership. When the company retained new legal counsel, it raised the issue of a second class of stock and inadvertent termination of the S election. As soon as the company was aware of the problem, it redeemed and cancelled the preferred stock. The IRS concluded that the preferred stock created a second class of stock, which terminated the S election, but deemed the termination to be inadvertent and allowed the company to retain S status. Note: a more tax-efficient method of eliminating the preferred stock would have been an E reorganization.

In another case, (13) an S corporation issued a common stock purchase warrant that may have created a second class of stock. To remedy the problem, the company eliminated the warrant. Once again, the Service determined that the warrant terminated the S election, but the termination was inadvertent under Sec. 1362(f).

In another situation, (14) an S corporation entered into restricted stock agreements in exchange for services with several employees. None of the employees made Sec. 83(b) elections when they received the restricted stock, but the company treated them as shareholders at that time. It was later determined that the employees should not have been treated as shareholders and corrective action was taken. The restricted stock could have created a second class of stock. The Service did not rule on whether the company's S election had terminated, but said that if it had, the termination would have been inadvertent.

A state law partnership can elect to be taxed as a corporation. However, if the partnership has both general and limited partners, the differences in rights and obligations may create a second class of stock. In one situation, (15) an S corporation converted to a state law limited partnership (LP). On the same day, S shares were transferred to an ineligible shareholder. After being advised of these problems, the company converted to a state law LLP that elected to be taxed as a corporation, and the shares were transferred to an eligible shareholder. The Service ruled that the transfer terminated the S election. In addition, if the conversion created a second class of stock, the election would also be terminated. However, both situations created inadvertent terminations; the company was allowed to retain S status.

QSub election: A subsidiary that wants to be treated as an S corporation can do so if owned by another S corporation and if a QSub election is properly filed. The election should be filed on Form 8869 by the 15th day of the third month after the effective date. Many of the past year's rulings (16) involved a late-filed QSub election. In each case, the Service determined that good cause had been shown for the delay and granted a 60-day extension from the ruling date to make the election.

AJCA Section 238(a) made an important change to the QSub rules. The IRS can now waive inadvertently invalid QSub elections and terminations that occur after 2004, if Sec. 1362(f) is met. This is consistent with Rev. Proc. 2004-49, (17) which simplifies the procedure to request relief for a late QSub election, by allowing the S corporation to attach a completed Form 8869 to a timely filed return for the tax year the QSub was created. The form should note at the top: "Filed under Rev. Proc. 2004-49."

In a different situation, (18) an S corporation formed two subsidiaries, X and X1 (a brother-sister structure) and made proper QSub elections for each. The S corporation transferred X1 to X (a parent-subsidiary structure). Later, the S corporation sold both subsidiaries; the new owner elected to treat X as an S corporation, but inadvertently failed to file a QSub election for X1. The S corporation was granted an extension to file the new QSub election.

In another case, (19) shareholders took an unincorporated entity and filed both check-the-box and S elections. They also contributed 100% of the stock of a company in an F reorganization. The S corporation intended the company to be a QSub, but filed Form 8869 using an incorrect corporate name for it. The S corporation was granted an extension to file the QSub election properly

In Rev. Rul. 2004-85, (20) the IRS addressed when a QSub election terminates if the S corporation transfers the QSub to another entity. If an S corporation merges with one of its QSubs and the merger qualifies under Sec. 368(a)(1)(F), the QSub election does not terminate, because the new company is treated as a continuation of the S corporation. However, if the transaction does not so qualify, the QSub election will terminate when the assets are transferred, unless it has always been an S corporation and elects to continue that status under Regs. Sec. 1.1361-5(c)(2).

E&P Issues

If an S corporation has Subchapter C accumulated earnings and profits (AEP), it must carefully monitor the composition of its gross receipts. After the AJCA's passage, certain banks and bank holding and financial holding companies do not have to include in passive investment income (PII), interest income and dividends on assets required to be held by the bank or holding company (e.g., Federal Reserve, Federal Home Loan Bank stock or participation certificates). AJCA Section 237(a)'s change to Sec. 1362(d)(3)(F) is effective for tax years beginning after 2004.

Most of the rulings dealt with whether rental real estate activities were active or passive for Sec. 1362(d)(3)(C) purposes. Regs. Sec. 1.1362-2(c)(5)(ii)(B) requires either significant services to be performed or significant costs to be incurred to elevate an activity to nonpassive. In a number of rulings, (21) rentals from industrial buildings, apartment complexes and commercial buildings were all deemed to be active income. In one instance, (22) an S corporation with AEP owned and leased mining property. The company provided various services, including permit and environmental compliance services, technical advice on numerous issues and storage and disposal of mineral by-products. The Service determined the payments received under the mining lease were not PII.

In another situation, (23) an S corporation with AEP received more than 25% of its receipts from PII for three consecutive years. The first day of year 4, the company's S election terminated. The company contended that the termination was inadvertent and not for tax avoidance purposes, and agreed to make any adjustments needed to retain S status. The IRS decided that the termination was inadvertent and allowed the company to retain S status if, within 60 days, it filed an amended return with an election under Regs. Sec. 1.1368-1(f)(3) to make a deemed dividend distribution of its AEP. In addition, the company's Shareholder had to file an amended return to include the additional dividend in income and pay the additional tax due.

Shareholder Eligibility

Sec. 1361(b) restricts S share ownership to U.S. citizens, resident individuals, estates, certain trusts and certain tax-exempt organizations. In several instances, (24) one of the shareholders of a corporation electing S status was a partnership, which is an ineligible shareholder. Subsequent to the S election, the partnership dissolved, and the shares were distributed to the partners. The Service found that the S election was inadvertently invalid, and allowed S status on the condition that the corporation file a valid Form 2553.

In a similar situation, (25) the IRS determined that a corporation's S election was ineffective because one of its shareholders was a C corporation. When the S corporation became aware of the problem, the C corporation transferred its shares to its owner. The Service allowed the S election, contingent on the S corporation treating the individual owner as the owner of the S stock from the date of the election.

Two situations (26) illustrate a valid protective S structuring technique. An S corporation had a shareholder agreement that invalidated any attempted transfer of shares to an ineligible shareholder. On request, it transferred shares from the shareholder to another entity that was an ineligible shareholder. When the company discovered that the new owner was an ineligible shareholder, the S corporation voided the shares issued to the ineligible shareholder and issued replacement certificates to the original owner. In addition, the ineligible shareholder repaid the flail amount of the distributions made to it, and the funds were redistributed to the original owner. The IRS found the termination of the S election to be inadvertent.

Likewise, in another situation, (27) an individual purchased S stock and requested that it be issued to an ineligible shareholder. When the corporation discovered that the stock was held by an ineligible shareholder, it cancelled it, then reissued it to the individual. The IRS determined the termination was inadvertent.

Ineligible Shareholders

LLCs: It is clear that small business tax advisers are using LLCs and single-member LLCs (SMLLCs) more than ever, as represented by the rulings discussed below. For example, S stock was purchased by an LLC, (28) which is an ineligible shareholder. When the mistake was discovered, the shares were distributed to the individual LLC members. The Service ruled the termination was inadvertent, and the corporation was allowed to retain S status. The LLC members, not the LLC, were deemed to be the shareholders for the period the LLC owned the S stock and had to report their shares of S income on their individual returns and make the appropriate adjustments to stock basis under Sec. 1367.

Similarly, (29) an S corporation issued shares to an LLC, a disregarded entity. The LLC's owner was also an S corporation, an ineligible shareholder. When counsel discovered this problem, the LLC's owner distributed the stock to its shareholders, all eligible shareholders. The IRS ruled the termination of the S election was inadvertent and that the S shareholders were deemed to own the stock during the time it was owned by the LLC.

Also, a shareholder planned to transfer his S stock to two SMLLCs. (30) The LLCs would form a state LP and transfer the stock to it. The LLCs and the LP were treated as disregarded entities for Federal tax purposes. The IRS ruled that, because the LLCs and the LP were disregarded as entities separate from their owners, the fact that the LLCs or LP owned the S corporation would not terminate the S election.

LPs: In yet another situation involving partnerships and S corporations, (31) an S corporation issued stock to an LP. The partnership was owned by an S corporation and four individuals. The S corporation did not know that a partnership was an ineligible shareholder. The Service ruled that the termination was inadvertent and that the shares owned by the partnership would be treated as owned directly by its partners. The shareholders of the LP's S corporation general partner would be treated as directly owning the S stock owned by that general partner. The ruling was contingent on all parties in the transaction filing amended returns reflecting the outcome of the ruling, within 60 days.

In a similar situation (32) with a twist, an S shareholder transferred his stock to a C corporation, unaware that it was an ineligible shareholder. When the error was discovered, the stock was transferred back to the S corporation. The Service determined that the C corporation would be treated as the S shareholder from the date the stock was initially transferred to the date that it was transferred back to the S corporation, and allowed the corporation to retain S status.

IRAs: In another ruling, (33) an IRA--an ineligible shareholder--acquired S stock. When the problem was discovered, the company redeemed the shares the IRA held. Because the issuance was not for tax avoidance or retroactive tax planning purposes, the IRS ruled that the termination was inadvertent. Interestingly, it held that because the S corporation had a net loss during the time the IRA held the stock, the ruling was Contingent on the IRA reporting its share of the net loss. Normally, the IRA beneficiary would have been treated as the shareholder and would have had to report the flowthrough income. However, this ruling resulted in no one benefiting from the IRA's share of the net loss.

In another situation, (34) an S corporation had two ineligible shareholders--a C corporation and an IRA. When the company's accountants discovered the problem, the corporate shareholder transferred its shares to one of its eligible shareholders; the S corporation returned the cash to the IRA in exchange for the stock and the IRA's beneficiary purchased the stock. The corporation reported the transaction as a cash distribution to the individual shareholder, followed by a purchase of the stock by the individual. This transfer would be taxed as a dividend to the individual shareholder. The IRS determined that the termination of the S election was inadvertent. In this instance, the C shareholder who received the stock and the IRA beneficiary would be treated as shareholders for the time the C corporation and the IRA held the stock.

Trusts

An S corporation and its tax advisers must constantly monitor its trust shareholders' elections, trust agreements and their subsequent modifications, for compliance with the S eligibility rules. In several instances, (35) an S corporation transferred stock to a trust that was an ineligible shareholder; this terminated the S election. When the company discovered the problem, the stock was transferred to an eligible shareholder. In each case, the Service determined the termination was inadvertent and allowed the company to retain S status.

In addition, the IRS ruled in several situations whether a trust would qualify as an S shareholder. In one ruling, (36) an S shareholder transferred stock to two trusts intended to qualify as QSSTs. However, a trust provision allowed distributions to be made to someone other than the trust beneficiaries, which made the mist ineligible to be a QSST. The trusts were reformed to comply with Sec. 1361(d)(3)(A)(ii)'s requirements. The IRS determined that, as reformed, each of the trusts met the definition of a QSST. Thus, provided a proper QSST election was made, the corporation could elect S status.

In another situation, (37) an eligible trust that owned S stock divided into two separate trusts intended to be eligible shareholders. One of the new trusts qualified as a QSST, but the beneficiary failed to make the election. The Service ruled that the transfer to the trust terminated the S election, but determined that the termination was inadvertent, and granted a 60-day extension to file.

Testamentary Trusts 

In several situations, (38) a trust was set up on the death of an S shareholder. In each instance, the trust qualified as a QSST, but the beneficiary failed to file the QSST election. The Service found that the company's S election terminated, but that the termination was inadvertent; it allowed the company to retain S status as long as the beneficiary filed a valid QSST election within 60 days of the ruling.

A testamentary trust set up pursuant to a will can own S stock for two years. After the two-year period, the trust is an ineligible shareholder, unless a qualified election is made. There were several instances in which a testamentary trust held S stock for more than two years. (39) At the end of two years, a QSST election needed to be made for the trust to continue to as an eligible shareholder. This election was not made, and the trust did not distribute its income to the beneficiaries. The Service found that both the failure to make the QSST election and the failure to distribute income terminated the S election, but ruled that the terminations were inadvertent, and allowed the company in each case to retain S status, as long as the beneficiaries made a valid QSST election.

In another instance, (40) a trust did not distribute S stock in time and, thus, became an ineligible shareholder. In addition, the trust agreement called for it to distribute the stock to two new trusts, a marital trust, and a nonmarital trust intended to qualify as a QSST. However, the beneficiary failed to make the QSST election. As discussed above, the Service found that the failures to distribute the assets and to file the QSST election terminated the S election, but that the termination was inadvertent. This ruling was contingent on (1) all shareholders treating the company as an S corporation, (2) the trusts reporting their shares of S income on their fiduciary tax returns and (3) the nonmarital trust filing a valid QSST election.

In another situation, (41) a trust agreement required the trust to distribute stock outright to five of the grantor's children and to a new trust that was intended to qualify as a QSST for the sixth child. The trust did not distribute the stock in time, because the trustee could not find a corporate trustee for the new trust. When it was discovered that the corporation's S election had terminated because of the trust's failure to distribute the stock, the trustee obtained a court order that modified the trust so that it could distribute the stock directly to all six children. The Service determined the termination was inadvertent.

Other Trust Issues

Election requirements: Another problem encountered by trusts is that for both a QSST and an ESBT, a separate election must be made for the trusts to qualify as eligible S shareholders. Many times, this election is filed incorrectly, and an inadvertent termination ruling is needed. This year, there were numerous instances (42) in which a mist was intended to be treated as either a QSST or an ESBT and met all the requirements, but the beneficiary or trustee failed to file an election. The IRS determined in each case that there was good cause for failing to make the election and granted a 60-day extension from the ruling date to make it.

In one situation, (43) in addition to failing to make the ESBT election, S stock was owned by two IRAs. When both problems were discovered, the corporation initiated corrective action. The IRS found that either event would terminate the S election, but deemed both to be inadvertent.

Income distributions and beneficiaries: One requirement for a QSST is that it distribute all of the trust's income annually. In a letter ruling, (44) several S shareholders that were QSSTs did not distribute their income currently, thus making them ineligible shareholders and terminating the S election. Later, all of the trusts made the necessary distributions. The IRS ruled that the termination was inadvertent.

In another instance, (45) two QSSTs distributed income to beneficiaries only to the extent necessary to pay taxes, thus violating the current income distribution requirement. The Service determined this violation terminated the S election, but the termination was inadvertent; it allowed the QSSTs to retain S status as long as the trusts distributed all income owed to the beneficiaries.

In another situation, (46) an S corporation wanted to redeem a pro-rata portion of its stock from several QSST shareholders. The distribution amount was projected to be more than 20% of the company's gross assets. The corporation wanted to treat the redemption proceeds as QSST principal, rather than income, and requested a ruling that such treatment would not violate the current income distribution requirement. The Service agreed, because the trust agreement gave the trustee broad discretion to allocate trust receipts between principal and income, and corporate distributions exceeding 20% of corporate assets were allocated to principal under state law.

Also, several cases (47) dealt with the type of beneficiary an ESBT may have. In each case, the trust contained a provision allowing the trustee to distribute income to multiple charitable beneficiaries; the trust agreement did not limit permissible charities to those described in Sec. 170. Because this clause could disqualify the trust as an ESBT, the trustee set up three new trusts and transferred the assets of the old trust to the new ones. The new trusts were substantially the same as the old ones, except that any charitable beneficiary had to be qualified under Sec. 170. The Service ruled that the new trusts were eligible ESBTs, as long as valid elections were made. A similar situation existed in another ruling. (48)

Terminations

Last year, the Tax Court ruled in Mourad (49) that a bankruptcy filing did not terminate S status, nor did it create a new entity. Thus, even though the shareholder received no proceeds, he was taxed on his individual return for the flowthrough gain and was liable for the tax thereon. This year, the First Circuit upheld the Tax Court's decision. (50)

Under Sec. 1362(g), if an S election is terminated, the corporation is not eligible to re-elect S status for five tax years. S and C short years are treated as two separate tax years. In one instance, (51) a shareholder revoked the S election. The stock was then sold to new owners who thought the company was an S corporation. The new owners wanted to re-elect S status. Even though the timeframe was not yet five years, the Service allowed the corporation to re-elect S status, because there was a more-than-50% change in ownership.

In another ruling, (52) an S corporation purchased all of the stock of another in a Sec. 338(h)(10) transaction. A few years later, the selling shareholders bought back the stock and wanted to file an S election. The relevant issue was whether the corporation was eligible to file an S election and, thus, elect QSub status for three subsidiaries. The IRS found that because a Sec. 338(h)(10) election was made, the original S election did not terminate when the stock was purchased. Thus, Sec. 1362(g) did not apply and the corporation would be deemed an S corporation from the time the new S election was filed, if Forms 2553 and 8869 were filed within 60 days of the ruling.

Conclusion

The second part of this article, in the November 2005 issue, will examine recent developments in S operational issues.

For more information about this article, contact Dr. Burton at [e-mail], or Dr. Karlinsky at [e-mail].

Editor's note: Dr. Karlinsky is a member of the AICPA Tax Division's S Corporation Taxation Technical Resource Panel (TRP). Dr. Burton is a member of the AICPA Tax Division's Partnership Taxation TRP.

Hughlene Burton, Ph.D., CPA 

Associate Professor and Chair

Department of Accounting

University of North Carolina-Charlotte

Charlotte, NC

Stewart S. Karlinsky, PhD., CPA

Graduate Tax Director

San Jose State University

San Jose, CA

(1) Rev. Proc. 2003-43, IRB 2003-23, 998.

(2) See, e.g., IRS Letter Rulings 200521024 (5/27/05), 200509018 (3/4/05), 200452031 (12/24/04) and 200446012 (11/12/04).

(3) See, e.g., IRS Letter Rulings 200520020 (5/20/05), 200514004 (4/8/05), 200448004 (11/26/04) and 200441017 (10/8/04).

(4) IRS Letter Rulings 200522009 (6/3/05) and 200443018 (10/22/04).

(5) IRS Letter Ruling 200521020 (5/27/05).

(6) IRS Letter Rulings 200518032 (5/6/05), 200504011 (1/28/05), 200449005 (12/3/04) and 200442029 (10/15/04).

(7) TD 9203 (5/23/05).

(8) Rev. Proc. 2004-48, IRB 2004-32, 172.

(9) For more details, see Brooks, Tax Clinic, "The AJCA Aids Financial Institutions Seeking S Sums," 36 The Tax Adviser 534 (September 2005).

(10) IRS Letter Ruling 200441010 (10/8/04).

(11) IRS Letter Ruling 200502021 (1/14/05).

(12) IRS Letter Ruling 200447003 (11/19/04).

(13) IRS Letter Ruling 200503020 (1/21/05).

(14) IRS Letter Ruling 200510011 (3/11/05).

(15) IRS Letter Ruling 200509006 (3/4/05)

(16) See, e.g., IRS Letter Rulings 200520002 (5/20/05), 200502005 (1/14/05) and 200450020 (12/10/04).

(17) Rev. Proc. 2004-49, 2004 IRB-33, 210.

(18) IRS Letter Ruling 200513021 (4/1/05).

(19) IRS Letter Ruling 200521013 (5/27/05).

(20) Rev. Rul. 2004-85, IRB 2004-33, 189.

(21) See, e.g., IRS Letter Rulings 200517011 (4/29/05), 200507012 (2/18/05), 200503016 (1/21/05), 200448011 (11/26/04) and 200446009 (7/21/04).

(22) IRS Letter Ruling 200451010 (12/17/04).

(23) IRS Letter Ruling 200448037 (11/26/04).

(24) IRS Letter Rulings 200509007 and 200509008 (both dated 3/4/05).

(25) IRS Letter Ruling 200518052 (5/6/05).

(26) IRS Letter Rulings 200452009 and 200452011 (both dated 12/24/04).

(27) IRS Letter Ruling 200448041 (11/26/04).

(28) IRS Letter Ruling 200448003 (11/26/04).

(29) IRS Letter Ruling 200520017 (5/20/05).

(30) IRS Letter Ruling 200513001 (4/1/05).

(31) IRS Letter Puling 200511005 (3/18/05).

(32) IRS Letter Ruling 200451011 (12/17/04).

(33) IRS Letter Ruling 200501013 (1/7/05).

(34) IRS Letter Ruling 200507003 (2/18/05).

(35) See, e.g., IRS Letter Rulings 200505019 (2/4/05), 200448044 (11/26/04) and 200444017 (10/29/04).

(36) IRS Letter Ruling 200441009 (10/8/04).

(37) IRS Letter Ruling 200510009 (3/11/05).

(38) See, e.g., IRS Letter Rulings 200518020 (5/6/05), 200510023 (3/11/05), 200453006 (12/31/04) and 200444012 (10/29/04).

(39) See, e.g., IRS Letter Rulings 200518004 (5/6/05), 200505001 (2/4/05) and 200448010 (11/26/04).

(40) IRS Letter Ruling 200515002 (4/15/05).

(41) IRS Letter Ruling 200444007 (10/29/04).

(42) See, e.g., IRS Letter Rulings 200519044 (5/13/05), 200508012 (2/25/05), 200502024 (1/14/05) and 200501014 (1/7/05).

(43) IRS Letter Ruling 200510024 (3/11/05).

(44) IRS Letter Ruling 200505012 (2/4/05).

(45) IRS Letter Ruling 200446010 (11/12/04).

(46) IRS Letter Ruling 200451021 (12/17/04).

(47) IRS Letter Rulings 200516002 (4/22/05), and 200513003, 200513004 and 200513005 (each dated 4/1/05).

(48) IRS Letter Ruling 200517006 (4/29/05).

(49) Alphonse Mourad, 121 TC 1 (2003).

(50) Alphonse Mourad, 387 F3d 27 (1st Cir. 2004).

(51) IRS Letter Ruling 200518045 (5/6/05).

(52) IRS Letter Ruling 200506007 (2/11/05).