National Society of Accountants Asks IRS for 6-Month Extension for S-Corp Elections

The National Society of Accountants (NSA) has issued a request to the IRS for a six month extension of the time by which a corporation must make an election to be treated as an S corporation for the current calendar year. The requested extension, which extends the time from March 15 to September 15, will allow time for the IRS to issue appropriate guidance as well as time for tax preparers to analyze the guidance and provide sound advice to clients.

In a strongly-worded letter to IRS Acting Commissioner Honorable David Kautter, NSA President Brian L. Thompson, CPA, and NSA Executive Director John G. Ams expressed grave concern over the March 15 deadline by which a corporation must make an election to be treated as an S corporation for the current calendar year.

“The March deadline is more than three months in advance of the June 30 date by which the IRS plans to issue priority guidance for tax changes that went into effect by the approved Tax Cuts and Jobs Act,” Ams points out. “The Tax Cuts and Jobs Act enacted in December of 2017 made substantial changes to the tax law as it relates to pass-through entities, including S corporations, with the introduction of a new Section 199A of the Internal Revenue Code. What’s missing is proper guidance.”

According to Ams, Section 199A is complex and confusing. More importantly, he notes that the effective tax rate can vary substantially depending on the definition of various terms.

“None of the terms used in Section 199A have been defined in any guidance issued by the IRS since the enactment of the provision,” said Ams.

According to NSA, the updated Priority Guidance Plan, issued on February 7, 2018, lists guidance under Section 199A as a priority and the hope that all priority guidance will be issued by June 30—more than three months after corporations must make an election to be treated as an S corporation for the current calendar year.

As co-owner of Bailey & Thompson Tax & Accounting, P.A., Little Rock, Ark., Thompson, a certified public accountant and president of NSA, knows first-hand the challenges facing tax preparers when tax changes are made without the availability of supporting guidance.

“NSA members as well as tax professionals across the country are being asked by clients to make our own interpretations of Section 199A,” said Thompson. “This is dangerous territory.”

Thompson is quick to point out that, to date, IRS and Treasury Department personnel have made numerous speeches acknowledging that the scope of Section 199A could change markedly depending on how official pronouncements choose to define some of the terms, which include “qualified business income” (QBI), “qualified property,” and “W-2 wages” properly applicable to QBI. He also notes that Section 199A further limits the deduction depending on whether the business is deemed to be a “specified service trade or business.”

“Making an election in March when the guidance on which such election may be based will be issued in June is unfair to taxpayers, tax professionals, and the tax system itself,” Thompson said.

Working on the assumption that the regulations under Section 199A are, in fact, issued by June 30, NSA believes that any entity considering making an S election should be given a six-month extension, until September 15, 2018, to do so.

“By allowing a six month extension to September 15, 2018, for a corporation to make an election to be treated as an S corporation for the current calendar year would afford time for all affected parties, as well as their tax adviser, to read and understand any such regulations and how they may impact their tax liabilities,” said Ams.