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Apparently speaking, I see no disadvantages to making the election under Regulation Sec. 1.1367-1(g) that you may face in future.
The logic of the regulation is that the IRS
will give the taxpayer a break by allowing the deductible losses first when there is a basis limitation
. But, since they want your basis to ultimately absorb the non-deductible expenses, you promise to carry them forward to a subsequent year when you do have enough basis to absorb them. That way it is just a timing difference as opposed to a permanent difference. So if it seems that the election will benefit
the taxpayer in the basis limitation year, you can do it.
FURTHER, as you know, Regs. Sec. 1.1367-1(g) provides an elective ordering rule under which a shareholder may elect to decrease basis under Regs. Sec. 1.1367-1(f)(4) prior to decreasing basis under Regs. Sec. 1.1367-1(f)(3). Thus, the shareholder may elect to allow his or her separately and non separately stated items of loss or deduction
to reduce basis prior to the nondeductible expenses. The regulation continues by saying that if a shareholder does make this election, any amount of deduction described in Regs. Sec. 1.1367-1(f) (3) (i.e., the nondeductible, non capital expenses) that exceeds the shareholder's basis in stock and indebtedness is treated, solely for purposes of this section, as such an amount in the succeeding tax year. Thus, if the Regs. Sec. 1.1367-l(g) election is made, the nondeductible, non capital expenses will carry forward until used to reduce stock or loan basis in a future year. Furthermore, once a shareholder makes an election under Regs. Sec. 1.1367-l(g), he or she must continue to use those rules
for that S corporation in future tax years
unless the shareholder receives permission from the IRS.The botXXXXX XXXXXne is,
I do not see any future disadvantage and you can opt for it.
I am sure this would help.
You may leave a positive rating if this helps, OR please feel absolutely free to revert for further clarifications and I shall be more than happy to keep assisting you.