On October 30, 2009, the IRS released Private Letter Ruling (PLR) 200944018, wherein the IRS privately ruled that in the year following a disproportionate distribution from an S corporation, such disproportionate distribution could be cured to avoid the inadvertent termination of the corporate S election. Even though the curing measure in the following year resulted in a non-pro-rata distribution, the traditional problem of creating a second class of stock was not an issue.
Remember, PLRs give great guidance and insight but are only binding on the requesting taxpayer. They cannot be relied upon as legal precedent by others. A copy of this PLR can be found at http://www.irs.gov/pub/irs-wd/0944018.pdf.
-Attorney David M. Grant