IRS written determination 201604004

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: 201604004
Release Date: 1/22/2016
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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Refer Reply To:
CC:PSI:B03
PLR-110449-15
Date:
September 14, 2015
X = --------------------------------
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Trust 1=----------------------------------------------------------------------
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Trust 2=----------------------------------------------------------------------
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State=------------
D1=-----------------------
D2=---------------------
D3=----------------------
Dear ----- ----------:
This responds to a letter dated March 19, 2015 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 incorporated under the laws of State
on D1 and elected to be an S corporation effective D2. On D3, a shareholder of X
transferred shares of X to Trust 1and Trust 2. X represents that, on D3, Trust 1and
Trust 2 were each eligible to elect to be an Electing Small Business Trust (ESBT) within
the meaning of § 1361(e). However, no election was made under § 1361(e)(3) to treat
either Trust 1or Trust 2as an ESBT. Trust 1and Trust 2, consequently, were ineligible
S corporation shareholders and, as a result, X’s S corporation election terminated on
D3. X represents that the termination was not motivated by tax avoidance or retroactive
tax planning. X and its shareholders have agreed tomake any adjustments that the
Commissioner may require, consistent with the treatment of X as an S corporation.

PLR-110449-15
2
Section 1361(e) defines an ESBT. Section 1361(e)(1)(A) provides that, except as
provided in § 1361(e)(1)(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 potential current beneficiary,
(ii) no interest in such trust was acquired by purchase, and (iii) no 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. 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 Secretary.
Section 1.1361-1(m)(2)(i) of the Income Tax Regulations provides that the
trusteeof the 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-(m)(2)(ii).
Section 1362(f) provides, inpart, 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 circumstancesresulting 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
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 S corporation election terminated on D3 because of the failure of the Trust 1
and Trust 2trustees to make the ESBT elections, and that the termination of X’s S
corporation election was inadvertent within the meaning of §1362(f). We further hold
that, pursuant to the provisions of § 1362(f), X will be treated as continuing to be an S
corporation from D3 and thereafter, provided X’s S corporation election was valid and
provided that the election was not otherwise terminated under §1361(d).
This ruling is contingent upon the respective trustees of Trust 1and Trust 2filing
ESBT elections effective D3 with the appropriate service center. 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 any such elections or returns. If the respective trustees of Trust 1

PLR-110449-15
3
and Trust 2fail to comply with this condition as described above, this ruling is null and
void.
Except as specifically set forth above, no opinion is expressed concerning the
federal tax consequences of the facts described above under any other provision of the
Code. Specifically, no opinion is expressed on whether X was or is otherwise eligible to
be treated as an S corporation or whether either Trust 1or Trust 2is eligible to be an
ESBT.
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. Pursuant to a power of attorney
on file, a copy of this letter is being sent to X’s authorized representative.
Sincerely,
Richard T. Probst
Senior Technician Reviewer, Branch 3
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)
Enclosures:2
Copy of this letter
Copy for § 6110 purposes
cc: