IRS written determination 201426021

Private letter rulings and published taxpayer determination letters. Native document type is retained separately; a determination letter is not labeled a private letter ruling. These taxpayer-specific releases cannot be used or cited as precedent under 26 USC 6110(k)(3); applicability and current legal force are not independently certified. Keep repeated UILC subjects attached to one actual numbered document.

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 201426021
Release Date: 6/27/2014
Index Number: 1362.04-00
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Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
---------------------, ID No. ----------------
Telephone Number:
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ReferReply To:
CC:PSI:B02
PLR-148854-13
Date:
January 30, 2014
Legend
X =---------------------------------------------------
----- ----------------
Trust 1= --------------------------------------------
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Trust 2= ------------------------------------------------
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State = ----------
Date 1 = ------------------
Date 2 = -----------------
Dear ---- ------------:
This responds to a letter dated November 25, 2013 submitted on behalf of X by
its authorized representative, requesting a ruling under § 1362(f) of the Internal
Revenue Code.
The information submitted states that X was formed in Stateon Date 1, and
made an election to be treated as an S corporation effective Date 2. Trust 1and Trust 2
held shares in X prior to Date 2. However, Trust 1and Trust 2failed to make timely and
effective electing small business trust (ESBT) elections. Therefore, X’s S corporation
election was ineffective.
X represents that X and each of its shareholders have filed consistently with the
treatment of X as an S corporation since Date 2. X further represents that the failure to
properly file the ESBT elections for Trusts 1 and 2were not motivated by tax avoidance

PLR-148854-13 2
or retroactive tax planning. X and its shareholders have agreed to make any
adjustments that the Commissioner may require, consistent with the treatment of X as
an S corporation.
Section 1361(a)(1) of the Code provides thatthe term “S corporation” means,
with respect to any taxable year, a small business corporation for which an election
under §1362(a) is in effect for such year.
Section 1361(b)(1)(B) provides that the term “small business corporation” means
a domestic corporation which is not an ineligible corporation and which does not have
as a shareholder a person (other than an estate, a trust described in § 1361(c)(2), or an
organization described in § 1361(c)(6)) who is not an individual.
Section 1361(e) defines anESBT. Section 1361(e)(1)(A) provides that, except
as provided in § 1362(e)(2)(B), an ESBT means any trust if (i) such trust does not have
as a beneficiary any person other than (I) an individual, (II) an estate, (III) an
organization described in § 170(c)(2), (3), (4), or (5), or (IV) an organization described in
§ 170(c)(1) which holds a contingent interest in such trust and is not a PCB, (ii) no
interest in such trust was acquired by purchase, and (iii) an election under § 1361(e)
applies to such trust.Section 1361(e)(3) provides that an election under § 1361(e) shall
be made by the trustee.
Section 1.1361-1(m)(2)(i) provides that the trustee of an ESBT must make the
ESBT election by signing and filing, with the service center where the S corporation files
its income tax return, a statement that meets the requirements of § 1.1361-1(m)(2)(ii).
Section 1362(d)(2) provides that (A) in general, an election under § 1362(a) shall
be terminated whenever (at any time on or after the first day of the first taxable year for
which the corporation is an S corporation) such corporation ceases to be a small
business corporation and (B) any termination under § 1362(d)(2) shall be effective on
and after the date of cessation.
Section 1362(f) provides that if (1) an election under § 1362(a) by any
corporation (A) was not effective for the taxable year for which made (determined
without regard to §1362(b)(2)) by reason of a failure to meet the requirements of
§ 1361(b) or to obtain shareholder consents or (B) was terminated under § 1362(d)(2)
or (3), (2) the Secretary determines that the circumstances resulting in the
ineffectiveness or termination were inadvertent, (3) no later than a reasonable period of
time after discovery of the circumstances resulting in the ineffectiveness or termination,
steps were taken (A) so that the corporation is a small business corporation or (B) to
acquire the shareholder consents; and (4) the corporation and each person who was a
shareholder of the corporation at any time during the period specified pursuant to
§ 1362(f), agrees to make such adjustments (consistent with the treatment of the
corporation as an S corporation) as may be required by the Secretary with respect to
such period, then, notwithstanding the circumstances resulting in the ineffectiveness or

PLR-148854-13 3
termination, the corporation will be treated as an S corporation during the period
specified by the Secretary.
Based solely on the facts submitted and the representations made, we conclude
that X’s election as an S corporation was ineffective and that this was inadvertent within
the meaning of § 1362(f). We further conclude that, pursuant to the provisions of
§ 1362(f), X will be treated as being an S corporation from Date 2and thereafter,
provided that X is otherwise eligible to be an S corporation and provided that the
election was not otherwise terminated under § 1362(d). Trust 1and Trust 2will be
treated as ESBTs from Date 2and thereafter.
This ruling is conditioned upon the trustee of Trusts 1 and 2filing, with the
appropriate service center, ESBT elections effective Date 2for Trust 1and Trust 2. The
ESBT elections must be filed within 120 days following the date of this letter and a copy
of this letter should be attached to the election.
Except as specifically ruled above, we express no opinion concerning the federal
tax consequences of the transactions described above under any other provisions of the
Code. Specifically, we express no opinion regarding X’s eligibility to be an S corporation
or the validity of its S corporation election. We express no opinion on whether Trust 1
or Trust 2qualify as ESBTs within the meaning of §1361(e).
This ruling is directed only to the taxpayer that requested it. Section 6110(k)(3)
provides that it may not be used or cited as precedent.
In accordance with the power of attorney on file with this office, a copy of this
letter is being sent to your authorized representative.
Sincerely,
Bradford Poston
Senior Counsel, Branch 2
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)
cc: