IRS written determination 201444012

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: 201444012
Release Date: 10/31/2014
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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Refer Reply To:
CC:PSI:03
PLR-106526-14
Date:
July 18, 2014
LEGEND
X=-------------------------------------------------------------------------------------------------------
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D1=-----------------------
D2=--------------------------
D3=---------------------
Trust=-------------------------------------------------------------------------------------------------------
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Dear -----------:
This letter responds to a letter dated January 31, 2014, and subsequent
correspondence, submitted on behalfof X by its authorized representative requesting a
ruling under § 1362(f) of the Internal Revenue Code (“Code”).
FACTS
X was incorporated on D1 and elected to be an S corporation effective D2. On
D3, Trust became a shareholder of X. X represents that Trustsatisfies the qualified
subchapter S trust (“QSST”) requirements under §1361(d)(3). However, the income
beneficiary of Trustfailed to file an election for Trustto be a QSST effective D3.
Therefore, Trustwas not a permitted shareholder.

PLR-106526-14
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X represents that the termination was not motivated by tax avoidance or
retroactive tax planning. X further represents that X and its shareholder have filed
consistently with the treatment of X as an S corporation since D1. X and its shareholder
have agreed to make any adjustments that the Commissioner may require, consistent
with the treatment of X as an S corporation.
LAW AND ANALYSIS
Section 1362(a) provides that, except as provided in § 1362(g), a small business
corporation may elect,in accordance with the provisions of § 1362, to be an S
corporation.
Section 1361(a)(1) 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) provides that the term “small business corporation” means 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 anestate,
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 one class of stock.
Section 1361(c)(2)(A)(i) provides that for purposes of § 1361(b)(1)(B), a trust all
of which is treated (under subpart E of part 1 of subchapter J of Chapter 1) as owned by
an individual who is a citizen or resident of the United States may be a shareholder.
Section 1361(d)(1) provides that a QSST whose beneficiary makes an election
under §1361(d)(2) will be treated as a trust described in § 1361(c)(2)(A)(i), and the
beneficiary of such trust shall be treated as the owner (for purposes of § 678(a)) of that
portion of the trust which consists of stock in an S corporation with respect to which the
election under § 1361(d)(2) is made.
Section 1361(d)(2)(A) provides that a beneficiary of a QSST (or his legal
representative) may elect to have § 1361(d) apply. Section 1361(d)(2)(D) provides that
an electionunder § 1361(d)(2) shall be effective up to 15 days and 2 months before the
date of the election.
Section 1.1361-1(j)(6)(ii) of the Income Tax Regulations provides that the current
income beneficiary of the trust must make the election under § 1361(d)(2) by signing
and filing with the service center where the corporation files its income tax return the
applicable form or a statement including the information listed in § 1.1361-1(j)(6)(ii).

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3
Section 1362(d)(2)(A) provides that an election under § 1362(a) will 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.
Section 1362(f) provides, in part, that if (1) an election under § 1362(a) by any
corporation was terminated under § 1362(d)(2) or (3); (2) the Secretary determines that
the circumstances resulting in the termination were inadvertent; (3) no later than a
reasonable period of time after discovery of the circumstances resulting in the
termination, steps were taken so that the corporation for which the termination occurred
is a small business corporation; and (4) the corporation for which the termination
occurred, and each person who was a shareholder inthe corporation at any time during
the period specified pursuant to §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 with respect to such period, then, notwithstanding the circumstances resulting
in the termination, the 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 corporation election terminated on D3, when stock in X was transferred to
Trust. We further conclude that the termination was inadvertent within the meaning of
§ 1362(f). Accordingly, pursuant to the provisions of § 1362(f), X will be treated as
continuing to be an S corporation from D3 and thereafter, provided that X’s S
corporation election was otherwise valid and has not otherwise terminated under
§ 1362(d).
This ruling is conditioned on the beneficiary of Trustfiling a QSST election for
Trust, effective D3, with the appropriate service center within 120 days of the date of
this letter. A copy of this letter should be attached to the QSST election.
Except as specifically ruled above, we express or imply no opinion concerning
the federal taxconsequences of the facts described above under any other provisions
of the Code, including X’s eligibility to be a valid S corporation, or Trust’s eligibility to be
a QSST.

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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 a power of attorney on file with this office, we are sending a
copy of this letter to X’s authorized representative.
Sincerely,
Holly Porter
Branch Chief, Branch 3
(Passthroughs & Special Industries)
Enclosures (2):
Copy of this letter
Copy for §6110 purposes
cc: