IRS written determination 201516001

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: 201516001
Release Date: 4/17/2015
Index Number: 1362.02-02, 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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Refer Reply To:
CC:PSI:B01
PLR-120420-14
Date:
November 05, 2014
Legend
X=------------------------
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Trust=-----------------------------------
Date 1=-----------------
Date 2=---------------------------
Date 3=---------------------
State=--------------------
$a=-------------------------------------------------------------
Dear ----------------:
This responds to a letter dated May 14, 2014, and supplemental information, submitted
on behalf of X by X’s authorized representative, requesting relief under section 1362(f)
of the Internal Revenue Code (the Code).
FACTS
According to the information submitted and representations within, X was incorporated
on Date 1, under the laws of State. Effective Date 2, X elected to be taxed as an S
corporation. Prior to Date 3, Trustwas a grantor trust and as such an eligible

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2
shareholder of X. On Date 3, Trustceased being a grantor trust. A timely election to
treat Trustas an ESBT was not made, thus Trustbecame an ineligible shareholder of X,
causing X’s S corporation election to terminate effective Date 3.
X represents that Trusthas atall times met the requirements of an ESBT within the
meaning of § 1361(e). Throughout the period that Trusthas been a shareholder of X, it
did not file its federal income tax returns consistent with being an ESBT, thus resulting
in a tax liability due of $a. X represents that its S corporation election termination was
inadvertent and was not motivated by tax avoidance or retroactive tax planning.
Further, X represents that X and its shareholders agree to make any adjustments
required as a condition of obtaining relief under the inadvertent termination rule as
provided under § 1362(f) of the Code that may be required by the Secretary.
LAW AND ANALYSIS
Section 1361(a)(1) of the Code provides that the 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) defines a “small business corporation” as a domestic corporation
which is not an ineligible corporation and which does not (A) have more than 100
shareholders, (B) 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, (C) have a nonresident alien as a shareholder, and (D) have more than 1
class of stock.
Section 1361(c)(2)(A)(v) provides that, for purposes of § 1362(b)(1)(B), an electing
small business trust (ESBT) may be an S corporation shareholder.
Section 1361(e) provides that 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)(1) which holds a contingent interest in such trust and
is not a potential current beneficiary, (ii) no interest in such trust was acquired by
purchase, and (iii) an election under § 1361(e) applies to such trust.
Section 1361(e)(1)(B) provides that the term “electing small business trust” shall not
include (i) any qualified subchapter S trust (as defined in § 1361(d)(3)) if an election
under § 1361(d)(2) applies to any corporation the stock of which is held by such trust,
(ii) any trust exempt from tax under subtitle A, and (iii) any charitable remainder annuity
trust or charitable remainder unitrust (as defined in § 664(d)).
Section1361(e)(3) provides that an election under § 1361(e) shall be made by the
trustee. Any such election shall apply to the taxable year of the trust for which made
and all subsequent taxable years of such trust unless revoked with the consent of the

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3
Secretary.
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 1.1361-1(m)(2)(iii) provides that the trustee of an ESBT must file the ESBT
election within the time requirements prescribed in § 1.1361-1(j)(6)(iii) for filing a QSST
election (generally within the 16-day-and-2-month period beginning on the day that the
stock is transferred to the trust).
Section 1362(f) provides, in relevant part, that if (1) an election under § 1362(a) by any
corporation 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
was terminated under § 1362(d)(2) or (3); (2) the Secretary determines that the
circumstances resulting in such ineffectiveness or termination were inadvertent; (3) no
later than a reasonable period of time after discovery of the circumstances resulting in
such ineffectiveness or termination, steps were taken so that the corporation for which
the election was made or termination occurred is a small business corporation; and (4)
the corporation for which the election was made or termination occurred, and each
person who was a shareholder in such corporation at any time during the period
specified pursuant to § 1362(f), agrees to make the adjustments (consistent with the
treatment of such corporation as an S corporation) as may be required by the Secretary
with respect to such period, then, notwithstanding the circumstances resulting in such
ineffectiveness or termination, such corporation shall be treated as an S corporation
during the period specified by the Secretary.
CONCLUSION
Based solely on the facts submitted and the representations made, we conclude that
X’s S election inadvertently terminated within the meaning of § 1362(f) on Date 3when
Trustbecame and ineligible shareholder. Pursuant to the provisions of § 1362(f), X will
be treated as an S corporation from Date 3and thereafter, provided X’s S corporation
election is not otherwise terminated under § 1362(d).
This letter is contingent upon the following conditions: (1) an adjustment payment in the
amount of $aand a copy of this letter ruling must be sent to the following address:
Internal Revenue Service, Cincinnati Service Center, 201 West Rivercenter Blvd.,
Covingtn, KY 41011, Stop 31, Terri Lackey, Manual Deposit. This payment must be
sent no later than 120 days from the date of this letter; (2) within 120 days from the date
of this letter, an election to treat Trustas an ESBT effective Date 3, must be made with
the appropriate service center. A copy of this letter should be attached to the ESBT
election. If these conditions are not met, then this ruling is null and void. Furthermore,
if these conditions are not met, X must send notification that its Selection has

PLR-120420-14
4
terminated to the service center with which X’s S election was filed.
Except as specifically ruled upon above, we express or imply no opinion concerning the
federal tax consequences of the facts of this case under any other provision of the
Code. Specifically, we express or imply no opinion regarding X’s eligibility to be an S
corporation.
This ruling is directed only to the taxpayer who requested it. According to § 6110(k)(3),
this ruling may not be used or cited as precedent.
Pursuant to the power of attorney on file with this office, we are sending a copy of this
letter to your authorized representative.
Sincerely,
Faith P. Colson
Faith P. Colson
Senior Counsel, Branch 1
Office of the Chief Counsel
(Passthroughs & Special Industries)
Enclosures (2)
Copy of this letter
Copy of this letter for section 6110 purposes
cc: