SECTION 7. PAPERWORK

REDUCTION ACT AND TAXPAYER BURDEN REDUCTION

The current burden for collection of information is effectively contained in § 1362(f) and § 1.1362-4 (inadvertent terminations and inadvertently invalid elections). Under § 1.1362-4(a), the determination of whether a termination or invalid S election or QSub election was inadvertent is made by the Commissioner. This determination is made through the PLR process pursuant to Rev. Proc. 2022-1 (and any successor revenue procedure). An entity that fails to qualify as an S corporation or a QSub may continue to qualify as an S corporation or a QSub, respectively, by following each requirement described in section 3 of this revenue procedure in lieu of requesting a PLR under § 1362(f) and § 1.1362-4.

Based on consultation with industry stakeholders, the Treasury Department and the IRS estimate that a taxpayer’s cost to outsource the current PLR process to Federal income tax and other advisors is approximately $108,000 (that is, the sum obtained by adding a $38,000 PLR user fee, a $20,000 average preparer PLR fee, and $50,000 of average preparer due diligence fees). This revenue procedure is expected to eliminate those fees.

Historically, approximately 80 S corporations per year have submitted a PLR with regard to one or more of the areas covered by this revenue procedure to avoid or correct an inadvertent invalid election or termination of their S corporation or QSub elections. The Treasury Department and the IRS have determined that many S corporations that do not seek administrative relief refrain from doing so because of the high cost associated with a PLR request. By setting forth the procedures provided in section 3 of this revenue procedure, which will significantly reduce the cost of relief for S corporations, the Treasury Department and the IRS expect that an additional 120 S corporations will use this revenue procedure each year. Overall, the Treasury Department and the IRS expect that approximately 200 S corporations will use this revenue procedure on an annual basis.

The Treasury Department and the IRS estimate that the streamlined process for non-identical governing provisions will take, on average, 10 total hours for each entity to read the instructions and complete the Corporate Governing Provision Statement and Shareholder Statement. The previously approved Office of Management and Budget hour estimate for a PLR is 80 total hours. Therefore, the 10-hour estimated burden of the streamlined process would result in a 70-hour time reduction for S corporations that would have sought PLR relief in the absence of this revenue procedure.

In addition, the Treasury Department and the IRS have determined that the 80-hour time estimate represents an average for all PLRs. However, the average number of hours spent on PLRs that would be impacted by this revenue procedure would likely be much higher. As a result, the Treasury Department and the

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IRS believe that a reasonable estimate for the number of hours spent on the impacted PLRs is 200 hours, and therefore the time burden reduction related to this revenue procedure is likely closer to 190 hours, rather than 70 hours. In addition, the Treasury Department and the IRS have determined that the total monetized burden hours is $188,120.

Based on the previously approved PLR hour estimate, each S corporation that would have otherwise filed a PLR will save 70 hours of time. As a result, there would be an overall savings of 5,600 hours per year. As previously

stated, the 80-hour estimate is likely low for this subset of PLRs. If the 200-hour estimate for this subset of PLRs is used, the overall burden reduction would equal 15,200 hours (80 requests x 190 hours) per year.

The Treasury Department and the IRS emphasize that the currently approved burden estimate does not include money burden. Assuming S corporations will no longer need to request these PLRs, the Treasury Department and the IRS have determined that this same group of businesses is expected to save, on an annual basis, an estimated $108,000 per

S corporation for an overall money burden reduction of $8,640,000.