S corporation current developments: S corporation eligibility and elections, operations, procedural changes and reorganizations.

From a tax perspective, the period covered in this update - Sept. 1, 1992 through July 15, 1993 - has been a busy one for S corporations and their shareholders. Several proposed and final regulations were issued, a few court cases (including a Supreme Court decision) were decided, and some revenue rulings and a plethora of private letter rulings were released. Although private letter rulings are not determinative for anyone but the requesting taxpayer, they give a sense of the direction in which the Service is moving, and are substantial authority for taking tax return positions; the results of inadvertent termination requests are also of practical interest to practitioners advising S corporations. This article will cover current developments in five major categories: eligibility and elections; operations; procedures; reorganizations; and regulation projects and the Revenue Reconciliation Act of 1993 (RRA).

Eligibility and Elections

With S corporations the entity of choice for many small businesses, it is not surprising that issues involving corporate and shareholder eligibility have generated numerous rulings.

* Shareholder eligibility

Trusts: In trying to keep the S corporation rules simple, there are significant limitations on who is an eligible shareholder. One of the areas of greatest confusion seems to be what type of trust qualifies as a shareholder. It is clear that voting trusts and revocable living trusts qualify as shareholders. In Rev. Rul. 92-73,(1) the IRS made it clear that a qualified Sec. 408(a) individual retirement account (IRA) is not eligible as an S shareholder. Of some consolation to the taxpayer, a letter ruling may be requested so that the inadvertent termination rules of Sec. 1362(f) may apply. This is exactly what was done in Letter Ruling 9324012,(2) in which an S corporation sold stock to two IRAS in 1988. Four years later, a new accountant discovered the mistake and the corporation redeemed the IRA-held stock. The government allowed the corporation to retain its S status.(3)

Similarly, in Letter Ruling 9241029,(4) an S corporation issued shares of its stock to an IRA. Ten months after issuance, the error was discovered and the corporation immediately canceled the IRA's stock certificate and reissued it in the name of the individual. The IRS treated the events as an inadvertent termination and allowed the corporation's S status to continue uninterrupted. QSSTs: In the eligibility arena, the qualified subchapter S trust (QSST) rules are often not precisely followed. Usually, the beneficiary forgets to elect to be qualified shareholder.(5)

In Letter Rulings 9325035, 9325036 and 9325037,(6) the Service said that when a minor is the sole beneficiary of a QSST, the parent's signing of the Form 2553, Election by a Small Business Corporation, was in substantial compliance with Sec. 1,361(d)(2) and, therefore, a valid S election was in effect.

In Letter Ruling 9325034,(7) S stock was transferred to a testamentary trust that also qualified as a QSST. The deceased shareholder's surviving spouse did not make a timely QSST election under Sec. 1,361 (d)(2). The IRS granted inadvertent termination status under Sec. 1362(f).

In another QSST-related ruling (Letter Ruling 9305020(8)), a qualified trust did not currently distribute the income received from the S corporation. It applied for and received inadvertent termination relief after it promptly cured the error by distributing the income to the beneficiary.

In Rev. Rul. 93-31,(9) the QSST rules endangered an S corporation's eligibility. A trust was established with two beneficiaries and was treated under Sec. 663(c) as two separate trusts. The two beneficiaries properly elected to be S shareholders. The problem was that the trust agreement allowed the (remote) possibility that the trustee could invade corpus of one trust for the benefit of the other trust's beneficiary for health, education, support or maintenance. This was in technical violation of the QSST rules and, therefore, S status was terminated. Testamentary bypass trusts are often structured this way. However, if an S corporation is involved, the tax adviser should set up multiple trusts rather than using only one trust with multiple beneficiaries.

In contrast to this revenue ruling, in Letter Ruling 9326046(10) a trust document could be modified to allow a trust with a sole beneficiary to qualify as a QSST. One of the modifications was that the trustee have the power to invade corpus for the beneficiary's support and maintenance during her life. The basic distinction between these two rulings was that in the revenue ruling there were two beneficiaries with the possibility existing that one might receive corpus that was attributed to the other beneficiary, while in the letter ruling there was only one beneficiary, so there was no possibility of anyone else sharing in the corpus while that beneficiary lived.

Partnerships: Obviously, a partnership is not an eligible shareholder, even if all its partners are qualified individuals. Nevertheless, mistakes are made and in Letter Ruling 9312021(11) the Service granted inadvertent termination relief even though two partnerships owned the S corporation's stock for over a year.

* Corporate eligibility

Affiliated corporations: In Letter Ruling 9323017,(12) the IRS permitted a new S corporation to continue its status even though it established an active 100%-owned subsidiary three months after electing S status. It sold the subsidiary to one of its shareholders seven months later. Three years after that, it discovered that affiliated group status had terminated its S election. It received an inadvertent termination ruling. In Letter Ruling 9322030,(13) an affiliated group was formed when an S corporation acquired control of another corporation. When they discovered the error, the companies merged. The IRS granted inadvertent termination relief.

Similarly, in Letter Ruling 9326012,(14) an S corporation owned 79% of another corporation. The external auditors suggested to management that it capitalize the intercompany debt of the subsidiary, which brought the parent's ownership in the subsidiary to above the 80% threshold. When the prohibited affiliated group status was discovered, the corporation distributed the capitalized shares to its shareholders. The Service ruled that the termination was inadvertent.

In two companion rulings, Letter Rulings 9245041 and 9245042,(15) two S corporations became an affiliated group in September 1991. When the error was discovered in April 1992, stock of the subsidiary was distributed to the parent's shareholders on a pro rata basis. The IRS held that both corporations experienced an inadvertent termination and could keep their S status. The rulings required the parent corporation to include the subsidiary's income in its separate and nonseparate taxable income, which was passed through to the shareholders. Note that this case is dramatically different from the momentary ownership situation discussed later in the "Reorganization" section, because these taxpayers were an affiliated group for over six months.

Similarly, in Letter Ruling 9321084,(16) a foreign branch was incorporated with an S corporation owning 79% of the foreign subsidiary's stock and a grantor trust owning the other 21%. However, under the trust's terms, the corporation could be considered to own 100%, which violated the affiliated group prohibition. As soon as the company was aware of the problem, it changed the trust terms and was granted inadvertent termination relief.

One class of stock: Since the kinder and gentler final Sec. 1361 regulations were issued, many fewer letter rulings have been requested in this area. However, one subject that is still generating some activity is whether various phantom stock options and other compensatory arrangements for key employees can be viewed as a second class of stock that would terminate an S election. Letter Rulings 9317021,(17) 9317009,(18) 9308022(19) and 9308006(20) all dealt with this and ancillary issues. By looking to the terms of the agreements and such factors as nontransferability, nonvoting in nature, unfunded, substantial risk of forfeiture, buy-back at book value, Rev. Rul. 85-161,(21) Regs. Sec. 1. 1361-1 (b)(4), etc., the Service said that the various compensatory schemes were not governing provisions and not a second class of stock.

* Elections

In Rev. Rul. 92-82,(22) a calendar-year corporation filed a Form 2553 by Mar. 15, 1991. One of the shareholders died on Mar. 1, 1991 and an executor of the estate was not appointed until Apr. 1, 1991. Was a valid election made or is the election effective beginning in 1992 since the executor did not consent to the election until after the Mar. 15, 1991 deadline? The ruling held that in this situation the corporation would be an S corporation for 1991 if Temp. Regs. Sec. 18.1362-2(c), which allows for an extension of time for signing the Form 2553, but not an extension of time for filing the election, was complied with. The ruling went on to say that if the decedent's stock was transferred by act of law under a joint tenancy with rights of survivorship or as tenants of the entirety, the surviving spouse's signature would be sufficient to cover both parties (surviving and deceased spouses).

Rockwell Inn(23) presented an interesting argument on electing S status. The corporation did not file a Form 2553 for 1981, but filed a Form 1120S, U.S. Income Tax Return for an S Corporation, anyway. The Service corresponded with the corporation and told it that since no proper election had been made, it was not eligible to exercise the privilege of S status. By this time, several returns had been filed on an S basis. The taxpayer argued that a de facto election had been made by its having filed a Form 1120S and the three shareholders having received K-1s and filed accordingly. The court held that since S status is a privilege, literal and formal conformity with the election procedure is mandatory. Therefore, an S election had never been made and S status was not available.

Operations

* Guarantors and co-borrowers

A standard S corporation problem vis-a-vis a partnership is how the shareholder may generate stock and debt basis to use entity level losses. Being a guarantor or co-borrower is not sufficient to give the shareholder basis for loss unless and until the shareholder pays the liability. In the partnership or limited liability company area, guaranteeing, co-borrowing, or, in the case of real estate, nonrecourse debt, is sufficient to give rise to an upward basis adjustment for loss purposes.

The longstanding judicial rule is that one must have an economic outlay before basis in S stock is increased. The Keech(24) case is the latest in a long line of cases(25) holding that guaranteeing or cosigning a loan does not give the S shareholder basis for loss. A better way to structure this borrowing situation would be to make back-to-back loans, and honor the form as well as the substance of the transaction.

* Passive investment income

If an S corporation either switches from C to S status or acquires trade or business assets in a tax-free manner as described in Sec. 381, the tax practitioner must be sensitive to both the Sec. 1375 tax and the Sec. 1362(d)(3) termination rules.

In Letter Ruling 9323033,(26) multiple profitable C corporations were merged into one corporation that then elected S status. The corporations continued their activities as divisions of the new corporation. They generate income from the rental of movie films and various ancillary services, such as editing the film for the target audience, rating the films, advertising, adding dual languages, etc. The Service ruled that these activities were significant services and therefore the income was not passive investment income. Hence, the corporation was not subject to the Sec. 1375 tax or the three-year termination rule.

In Letter Ruling 9325012,(27) an S corporation owned a retail shopping center and leased space to various tenants. The owner provided marketing and advertising expertise, promotional activities, janitorial services and 24-hour security. These services were not solely for the maintenance of the property, but for the convenience of the tenants. The Service said that these services were significant and, therefore, income from these activities was not passive for Sec. 1362 and 1375 purposes. Similarly, Letter Ruling 9321041(28) addressed a slightly different scenario in which the S corporation was a general partner in a partnership that performed activities similar to those listed above. The Service ruled that the aggregate concept would attribute the partnership activity to the corporation and, therefore, the rental income was not passive investment income.(29)

Letter Ruling 9314018(30) addressed the issue of whether an S corporation that leases rail cars on a short-term basis, delivers the cars to the customer and does repairs generates passive or active income. Citing Rev. Rul. 76-469,(31) the Service ruled that the activities were significant services and, therefore, the income was not passive investment income.

In Letter Ruling 9312027,(32) an S corporation with subchapter C earnings and profits (E&P) was a broker-dealer. A considerable portion of its gross receipts was from margin account interest. Under the old Sec. 1362 regulations, this was passive investment income. Under new Regs. Sec. 1. 1362-2(c)(5)(iii)(b), this income is not passive investment income. The Service pointed out that the taxpayer may elect to apply the new Sec. 1362 regulations retroactively.

Sec. 1362(d)(3) holds that if for three consecutive years an S corporation has any subchapter C E&P, and has passive investment income that exceeds 25% of gross receipts, in the fourth year the S status is terminated. In Letter Rulings 9241035,(33) 9241057(34) and 9321038,(35) the Service ruled that such a termination was inadvertent. However, these companies were generally required to pay a tax liability agreed to between the parties within 30 days of the ruling.

* Passthrough nature

If an individual taxpayer incurs a business bad debt, it is deductible when it becomes partially or totally worthless and is treated as an ordinary loss.(36) If the loss is treated as a nonbusiness bad debt, it must be totally worthless to be deductible and the loss is characterized as a short-term capital loss.(37) Rev. Rul. 93-36(38) addressed the issue of how an S shareholder treats a nonbusiness bad debt loss incurred by an S corporation that, if it were a C corporation, would treat the loss as ordinary and deduct it in an earlier year. The IRS ruled that Sec. 1366(b) treats the transaction under the Sec. 166(d)(1) rules for individuals and therefore no partial worthlessness is allowed. Also, in the year that it is properly deductible it will be characterized as a short-term capital loss.

* QSSTs

In Rev. Rul. 92-84,(39) a QSST sold part or all of its S stock. The issue was who should pick up the gain or loss on the sale, the trust or the trust's sole beneficiary. The ruling held that because the beneficiary made the Sec. 1361(d)(2) election, he must report the gain on his individual tax return since he is the owner of that portion of the trust.

Procedural Issues

In the last year, two major court cases considered which level, the corporate or shareholder, is determinative for statute of limitations purposes and for S corporation audit and litigation provisions.

For a small S corporation with fewer than six shareholders, whose Form 1120S is due on or after Jan. 30, 1987 (without extensions), each shareholder may individually protest the audit results, and sue or be sued in Tax Court, district court or the U.S. Claims Court.(40) If the S corporation has one shareholder, the shareholder may dispute audit and litigation issues irrespective of the due date of the S corporation tax return. All large S corporations must follow unified procedures at the entity level.

Current court controversy revolves around the issue of whether a small S corporation with a due date before Jan. 30, 1987 must comply with entity level actions or whether the existing small partnership exception allows the shareholders individual level actions. In Beard,(41) the Eleventh Circuit held that for a situation not covered by the temporary regulations, no small S corporation exception applies. This issue would primarily arise for pre-1987 tax year small S corporations currently under audit or any protests, claims, etc., relative to those years. The Tax Court has consistently held that small S corporations with more than one shareholder are not covered by the small partnership exception and must file at the corporate level.(42) However, in Arenjay Corp.,(43) the Fifth Circuit reversed and remanded to the Tax Court, holding that the small partnership exception applies to small S corporations also, even if their tax returns were due before Jan. 30, 1987.

Thus, the Fifth Circuit maintains that the small partnership rules per se apply to S corporations, while the Eleventh Circuit does not allow S shareholders to ignore the unified audit and litigation rules. Another inconsistency lies in the temporary regulations prescribing a five-or-fewer standard, while the small partnership rules dictate 10 or fewer partners.

* Statute of limitations

A common problem is that the S corporation may have a three-year statute of limitations that goes by unextended, while the shareholder may have an extended statute expiration date or is forced on audit to extend the statute. This difference is exacerbated when the S corporation has a noncalendar natural year-end or a Sec. 444 election in place. The primary issue faced by the courts in Bufferd(44) was which return starts the tolling of the statute of limitations, the S corporation's or the shareholder's. In Kelley,(45) the Ninth Circuit held that the S corporation's tax return was determinative and therefore the IRS assessment was imposed too late. On the other hand, the Second, Fifth and Eleventh Circuits(46) have held that a shareholder's return was dispositive of the issue and the assessment was timely filed. The Supreme Court decision in Bufferd settled the circuit conflicts by holding that the shareholder's statute of limitations was the crucial one.

The Court did note that if a corporate level tax is involved, such as Sec. 1374 or 1375, the corporate statute of limitation would be the relevant focus.

* Substantial compliance

In the Rockwell Inn(47) case (discussed earlier), the IRS and the Tax Court held that not filing a Form 2553 was an act of substantial noncompliance and, therefore, no valid S election was made.

In Letter Ruling 9303005,(48) a major shift in S shareholders occurred on July 1, 1988. The shareholders elected to close the books and treat the tax information as if it arose in two separate tax years. All the shareholders included the K-1 information prepared under the closing of the books method in their individual tax returns. However, no formal clection under Temp. Regs. Sec. 18.1377-1 was filed with the return. According to the Service, if the election was just procedural in nature, the de facto compliance was as important as literally meeting the form. Since the shareholders affirmed their election of the closing of the books method by including the tax information in their tax returns, there was substantial compliance.

Letter Ruling 9305004(49) dealt with a situation in which a C corporation with a March 31 year-end elected to switch to S status on April 1. On June 1 (within 2 1/2 months of the beginning of the year), it revoked its election. In December, the corporation elected S status for the next year. The Service held that no five-year waiting period was required to reelect S status since no S corporation existed due to the timely revocation.

Reorganization Issues

As the vehicle of choice of many small businesses, it is only natural that more S corporations are splitting businesses off,(50) acquiring stock, electing asset purchase treatment(5l) and otherwise restructuring.

A fundamental issue in the restructuring area is whether an S corporation should be treated as a corporation or as an individual for various subchapter C provisions.(52) For example, only a corporation may be the parent in a Sec. 332 liquidation or the acquiror in a Sec. 338 transaction or the distributing corporation in a corporate division. In Letter Ruling 9245004,(53) the government has reaffirmed the position it held in GCM 39768(54) that an S corporation is eligible to be treated as a corporation for the above cited sections, and that Sec. 1371(a)(2) is primarily intended to apply to the treatment of dividends received. Therefore, as long as the momentary ownership rules are complied with, an S corporation may be the acquiror in a Sec. 332 or 338 transaction, or the distributor in an otherwise valid divisive D reorganization. Shedding additional light on the scope of Sec. 1371(a)(2), Letter Ruling 9323024(55) specifically revoked Letter Ruling 8818049(56) by ruling that when an S corporation purchased a target S corporation, a Sec. 338 election was available.

In line with GCM 39768, Letter Rulings 9326016(57) and 9326011(58) allowed S corporations to restructure in divisive D reorganizations to enable key employees to receive equity ownership in certain businesses. Both Letter Ruling 9319002(59) and Letter Ruling 9319041(60) involved S shareholder disputes that adversely affected the smooth running of their respective businesses. The IRS said that the divisive D reorganizations planned in both situations were valid reorganizations. Both the distributing and controlled corporations were eligible to be S corporations. Similarly, in Letter Ruling 9326047,(61) the IRS approved an S corporation's A reorganization followed by a corporate division.

In Letter Ruling 9309031,(62) the Service allowed a corporation to use an F reorganization to switch its status from a domestic corporation to a business trust that exhibited more than half of the Sec. 7701 corporate attributes, and still maintain its S status. In Letter Ruling 9309033,(63) the facts were similar and the outcome the same, even though the F reorganization was preceded by a statutory merger. The IRS also said in both rulings that the accumulated adjustments account carried over to the new entity and that the same Federal identification number may be used.

Regulation Projects and the RRA

Last year, the Treasury issued both final and proposed regulations in the S corporation area. Final regulations under Sec. 1362, which are favorable to taxpayers, and final regulations under Sec. 1363 were released in November 1992.(64) Proposed regulations under Secs. 1367 and 1368 were issued in June 1992,(65) and proposed regulations under Sec. 1374 were issued in December.(66)

The RRA, enacted into law on Aug. 10, 1993, has very little direct impact on S corporations. It does, however, affect the choice of entities in several indirect ways: The corporate/individual tax rate differential of high-income taxpayers is back to its historical position of higher individual (36% or 39.6%) than corporate rates (34% or 35%). However, the impact of the repeal of the General Utilities doctrine, less alternative minimum tax (AMT)/adjusted current earnings (ACE) exposure, passthrough of losses, cash method of accounting, and state income tax considerations are still favorable to S status.

The newly enacted small business stock exemption applies only to C corporations.(67) Thus, new investments in S corporations, partnerships and limited liability companies are not qualified for the exclusion. On the other hand, if a taxpayer needs to restructure debt on real estate, the debtor is better off not being a C corporation, since cancellation of indebtedness interest on qualified real estate business property may be deferred through a basis adjustment of other real estate property owned. To the extent S distributions are made that are not salary, the Medicare tax increase will be avoided. This obviously assumes that reasonable compensation is being paid.

(1) Rev. Rul. 92-73, 1992-2 CB 224. (2) IRS Letter Ruling 9324012 (3/18/93). (3) See also IRS Letter Rulings 9321012 (2/19/93) and 9312018 (12/23/92). (4) IRS Letter Ruling 9241029 (7/10/92). (5) See IRS Letter Rulings 9305019 (11/12/92); 9308038 (12/2/92); 9316013 (1/19/93); 9324027 (3/23/93); 9324032 (3/24/93); 9326018 (3/31/93), in which the Service granted Sec. 1362(f) relief. (6) IRS Letter Rulings 9325035 (3/26/93); 9325036 (3/26/931); 9325037 (3/26/93). (7) IRS Letter Ruling 9325034 (3/25/93). (8) IRS Letter Ruling 9305020 (11/12/92). (9) Rev. Rul. 93-31, IRB 1993-17, 5. (10) IRS Letter Ruling 9326046 (4/4/93). (11) IRS Letter Ruling 9312021 (12/24/92). (12) IRS Letter Ruling 9323017 (3/12/93). (13) IRS Letter Ruling 9322030 3/29/93). (14) IRS Letter Ruling 9326012 (3/29/93). (15) IRS Letter Rulings 9245041 (8/13/92) and 9245042 (8/13/92). (16) IRS Letter Ruling 9321084 (3/4/93). (17) IRS Letter Ruling 9317021 (1/27/93). (18) IRS Letter Ruling 9317009 (1/21/93). (19) IRS Letter Ruling 9308022 (11/25/92). (20) IRS Letter Ruling 9308006 (11/24/92). (21) Rev. Rul. 85-161, 1985-2 CB 191. (22) Rev. Rul. 92-82, 1992-2 CB 238. (23) Rockwell Inn, Ltd., TC Memo 1993-158. (24) Rea H. Keech, Jr., TC Memo 1993-71. (25) See, e.g., Est. of Daniel Leavitt, 875 F2d 420 (4th Cir. 1989)(63 AFTR2D 89-1437, 89-1 USTC para. 9332), aff'g 90 TC 206 (1988); James K. Calcutt, 91 TC 14 (1988) and 84 TC 716 (1985); Homer Z. Goatcher, 944 F2 747 (10th Cir. 1991) (68 AFTR 2d 91-5596, 91-2 USTC para. 50, 450); Lawrence R. Uri, Jr., 949 F2d 371 (10th Cir. 1991)(68 AFTR 2d 91-5891, 91-2 USTC para. 50, 556). (.26) IRS Letter Ruling 9323033 (3/17/93). (27) IRS Letter Ruling 9325012 (3/19/93). (28) IRS Letter Ruling 9321041 (2/25/93). (29) This same logic was also applied in IRS Letter Rulings 9250011 (9/4/92) and 9311011 (12/16/92). (30) IRS Letter Ruling 9314018 (1/7/93). (3l) Rev. Rul. 76-469, 1976-2 CB 252. (32) IRS Letter Ruling 9312027 (12/29/92). (33) IRS Letter Ruling 9241035 (7/13/92). (34) IRS Letter Ruling 9241057 (7/16/92). (35) IRS Letter Ruling 9321038 (2/24/93). (36) Sec. 166(a). (37) Sec. 166(d). (38) Rev. Rul. 93-36, IRB 1993-19, 4. (39) Rev. Rul. 92-84, 1992-2 CB 216. (40) Temp. Regs. Sec. 301.6241-1T(c). (41) Charles D. Beard, Jr., 11th Cir., 1993 (72 AFTR2d 93-5197, 93-1 USTC [paragraph] 50,359). (42) See Blanco Investments & Land, Ltd, 89 TC 1169 1987); 111 West 16th Street Owners, Inc., 90 TC 1243 (1988); Arenjay Corp., 920 F2d 269 (5th Cir. 1991)(67 AFTR2D 91-360, 91-1 USTC [paragraph] 50,015), rev'g and rem'g unreported TC decision. (43) Arenjay Corp., id. (44) Sheldon B. Bufferd, 113 Sup. Ct. 927 (1993)(71 AFTR2d 93-573, 93-1 USTC [paragraph] 50,038), aff'g 952 F2d 675 (2d Cir. 1992)(69 AFTR2d 92-465, 92-1 USTC [paragraph] 50,03 1). (45) Daniel M. Kelley, 877 F2d 756 (9th Cir. 1989)(64 AFTR2d 89-5025, 89-1 USTC [paragraph] 9360). (46) See Bufferd, note 44; Charles T Green, 963 F2d 783 (5th Cir. 1992) (70 AFTR2d 92-5077, 92-2 USTC 150,340); Robert Fehlhaber, 954 F2d 653 (11th Cir. 1992)(69 AFTR2d 92-850, 92-1 USTC [paragraph] 50,131). (47) Rockwell Inn, note 23. See the discussion accompanying note 23 in the "Elections" section. (48) IRS Letter Ruling 9303005 (10/19/92). (49) IRS Letter Ruling 9305004 (11/5/02). (5O) Sec. 368(a)(1)(D). (51) Sec. 338. (52) See Sec. 1371(a)(2). (53) IRS Letter Ruling (TAM) 9245004 (7/28/92). (54) GCM 39768 (12/l/88). (55) IRS Letter Ruling 9323024 (3/16/93). (56) IRS Letter Ruling 8818049 (2/10/88). (57) IRS Letter Ruling 9326016 (3/31/93). (58) IRS Letter Ruling 9726011 (3/26/93). (59) IRS Letter Ruling 9319002 (2/4/93). (60) IRS Letter Ruling 9319041 (2/17/93). (61) IRS Letter Ruling 9326047 (4/5/93). (62) IRS Letter Ruling 9309031 (12/4/92). (63) IRS Letter Ruling 9309033 (12/4/92). (64) TD 8449 (11/24/92). (65) PS-264-82 (6/6/92). For a discussion of the regulations, see Tzinberg, "Proposed S Corporation Regulations Under Secs. 1367 and 1368," 24 The Tax Adviser 339 (June 1993). (66) CO-80-87 (12/8/92). For a discussion of these controversial provisions, see O'Neil and Dennis-Escoffier, "S Corporation Built- (67) Sec. 1202, added by RRA Section 13113(a).