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ARTICLE · 08 MARCH 2013

IRS Rules Distribution Agreement Does Not Create Second Class Of Stock

Grant Thornton LLP
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The IRS has ruled in PLR 2013-06-004 that an S corporation's distribution agreement with its shareholders would not create a second class of stock under Section 1361(b)(1)(D).

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Grant Thornton'S Washington National Tax Office
Grant Thornton'S Washington National Tax Office
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The IRS has ruled in PLR 2013-06-004 that an S corporation's distribution agreement with its shareholders would not create a second class of stock under Section 1361(b)(1)(D).

The private letter ruling addresses an S corporation and shareholders who intended to enter into an agreement that included provisions relating to minimum distributions to shareholders. The distributions would be based on i) the shareholder's varying interests in the S corporation's income in the current or immediately preceding tax year or earlier if such earlier tax year's taxable income is adjusted after the S corporation's original return for the earlier year is filed, or ii) a pro rata distribution to the shareholders based on the number of shares that the shareholder owns as of a record date.

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