New IRS relief provisions.

Stuart R. Josephs, CPA, of the San Diego-based Tax Assistance Practice, reports the following:

NEW IRS RELIEF PROVISIONS

Final, temporary and proposed regulations (T.D. 9139 and REG-131786-03, published July 20, 2004) provide that eligible entities filing timely S corporation elections will be deemed to have elected to be classified as associations taxable as corporations.

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Also, Rev. Proc. 2004-48, IRB 2004-32, Aug. 9, 2004, provides a simplified method to request relief for a late S corp election and a late corporate classification election which was intended to be effective on the same date that the S corp election was intended to be effective. Generally, certain eligible entities may be granted relief if the entity satisfies the requirements of Sec. 4 of this revenue procedure.

In addition, Rev. Rul. 2004-85, IRB 2004-33, Aug. 16, 2004 holds that:

* A QSub election does not terminate solely because the parent S corp engages in an "F" reorganization;

* A QSub election terminates if the S corp transfers 100 percent of the QSub stock, by sale or an "A," "C" or "D" reorganization, to another S corp (in a transaction not qualifying as an "F" reorganization); and

* An entity classification election of an eligible entity does not terminate solely because the owner (by sale, an "A," "C," "D" or "F" reorganization, or otherwise) transfers all of the membership interest in that entity to another person.

However, Rev. Proc. 2004-49, IRB 2004-33, Aug. 16, 2004, provides a simplified procedure for a Qualified S Corp to request relief for a late QSub election for a Qualified Subsidiary. A corporation is a Qualified Subsidiary if:

* 100 percent of its stock was transferred by one S corp to another S corp in a sale or as part of an "A," "C" or "D" (but not an "F") reorganization; and

* A QSub election was in effect for that corporation immediately before this transfer.

An S corp is a Qualified S Corp if it owns 100 percent of the Qualified Subsidiary immediately after the sale or reorganization described above.