However, certain procedural defects may make an S election invalid if the entity fails to qualify as a small business corporation at the time it files its S election, she said. Moreover, if an entity that validly elected as an S corporation ceases to qualify as a small business corporation, its S election terminates.
In these instances, the IRS may grant a waiver under Internal Revenue Code section 1362(f) of an inadvertent invalid or terminated S election in the form of a private letter ruling, Nellen said.
She noted in her letter that an official from the IRS Office of Associate Chief Counsel (Pass-throughs and Special Industries) articulated the IRS's informal, no-rule policy on three S corporation matters at a March 2017 tax law conference.
In addition, Nellen wrote, the official said the policy may expand as issues are raised that the IRS views as "comfort rulings," or rulings that are not providing protection to taxpayers.
She asked that the IRS take these actions:
- Ensure that the no-rule policy does not become overly broad
- Formally define and publish the parameters of the no-rule policy
- Issue a revenue ruling or other authoritative pronouncement to provide clarity for certain S corporation matters on which the IRS will no longer rule
— Check out Tax Law Surprise: A SEP IRA Upgrade for Service Pass-Throughs on ThinkAdvisor.
(Photo: Allison Bell/ThinkAdvisor) 
