IRS written determination 201436042

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: 201436042
Release Date: 9/5/2014
Index Number: 1362.04-00
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Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:B02
PLR-149733-13
Date:
February 19, 2014
LEGEND:
X=-----------------------------------------------------------------------------------------------------------------------
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A=-----------------------------------------------------------------------------------------------------------------------
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B=-----------------------------------------------------------------------------------------------------------------------
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C =-----------------------------------------------------------------------------------------------------------------------
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State=---------
Date 1=---------------------------
Date 2=---------------
Date 3=----------------
Date 4=------------------------
Dear--------------------
This responds to a letter dated December 3, 2013, submitted on behalf of X by its
authorized representative, requesting a ruling under §1362(f) of the Internal Revenue
Code.

PLR-149733-13
2
The information submitted states that X was incorporated under the laws of State
on Date 1and elected to an S corporation effective Date 1. In Date 2, X’s shareholders
executed a Shareholders Agreement. The agreement provides that if X has elected S
corporation status, then X will not nor will it be compelled to recognize any transfer of
X’s shares to a party, who in the opinion of X’s counsel, that could result in the
termination of X’s S corporation status. On Date 3, B entered into an agreement with A
to purchase a portionof A’s shares of X. However, B was not an eligible S corporation
shareholder. Therefore, effective Date 4, B assigned all of its shares of X to C, an
eligible S corporation shareholder.
X represents that the circumstances resulting in the possible termination of X’s S
corporation election were inadvertent and were not motivated by tax avoidance or
retroactive tax planning. X and its shareholders have agreed to make adjustments,
consistent with the treatment of X as an S corporation, as may be requiredby the
Service.
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 so that the corporation is a small business corporation; and (4) the
corporation, and each person who was a shareholder of the corporation at any time
during the period specified under § 1362(f), agrees to make the adjustments (consistent
with the treatment of the corporation as an S corporation) as may be required by the
Secretary for that period, then, notwithstanding the circumstances resulting in such
termination, the corporation shall 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 if X’s S corporation election terminated on Date 3due to anineligible shareholder,
the termination was inadvertent within the meaning of § 1362(f). Accordingly, under
§ 1362(f) X will be treated as continuing to be an S corporation from Date 3and
thereafter, provided that X’s S corporation election is not otherwise terminated under
§ 1362(d). In addition, X and its shareholders must treat C as having held the shares of
X effective Date 3instead of B. X and its shareholders must amend any prior tax
returns that are inconsistent with this treatment within 120 days of the date of this ruling.
A copy of this letter should be attached to any such amended returns.
Except as specifically ruled above, we express or imply no opinion concerning
the federal tax consequences of the transactions described above under any other
provision of the Code. Specifically, we express or imply no opinion regarding whether X

PLR-149733-13
3
is otherwise eligible to be an S corporation. This ruling is directed only to the taxpayer
who 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 X’s authorized representative.
Sincerely,
Bradford R. Poston
Senior Counsel, Branch 2
(Passthroughs & Special Industries)
Enclosures (2)
Copy of this letter
Copy for § 6110 purposes
cc: