IRS written determination 201445004

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: 201445004
Release Date: 11/7/2014
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-112163-14
Date:
July 17, 2014
LEGEND
X=---------------------------------------------------------------------------------------------
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Trust=---------------------------------------------------------------------------------------------
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Shareholder=---------------------------------------------------------------------------------------------
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State=--------------
D1=--------------------------
D2=--------------------
D3=-----------------
D4=-----------------
D5=--------------------------
Dear ------------:
This letter responds to a letter dated March 5, 2014, and subsequent
correspondence, submitted on behalf of X by its authorized representative requesting a
ruling under § 1362(f) of the Internal Revenue Code (Code).

PLR-112163-14
2
FACTS
X was incorporated under the laws of Stateon D1 and elected to be an S
corporation effective D1. On D2, Shareholdertransferred all ofhis shares of X stock to
Trust, but was treated as the owner of the X stock under the Code. Shareholderdied
on D3, and, on D4, Trust was no longer a permitted shareholder. Therefore, X’s S
corporation election terminated on D4. Trusttransferred all of its shares of X stock to
permitted shareholders on D5.
X represents that the termination was not motivated by tax avoidance or
retroactive tax planning. X further represents that X and its shareholders have filed
consistently with the treatment of X as an S corporation since D1. 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.
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 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 one class of stock.
Section 1361(c)(2)(A)(i) provides that a trust, all of which is treated (under
subpart E, part I, subchapter J, chapter 1 of the Internal Revenue Code) as owned by
an individual (whether or not the grantor) who is a citizen or resident of the United
States(a qualified subpart E trust), is a permitted shareholder.
Section 1361(c)(2)(A)(ii) provides that a trust that is a qualified subpart E trust
immediately before the death of the deemed owner that continues in existence after
such death is a permitted shareholder, but only for the two-year period beginning on the
day of the deemed owner’s death.

PLR-112163-14
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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 relevant 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 (A) so that the corporationis 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 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 termination, the corporation will be
treated as an S corporation during the period specified by the Secretary.
Section 1.1362-4(b) provides, in relevant part, that for purposes of §1.1362-4(a),
the determination of whether a termination was inadvertent is made by the
Commissioner. The corporation has the burden of establishing that under the relevant
facts andcircumstances the Commissioner should determine that the termination was
inadvertent. The fact that the terminating event was not reasonably within the control of
the corporation or was not part of a plan to terminate the election, or the fact that the
terminating event or circumstance took place without the knowledge of the corporation,
notwithstanding its due diligence to safeguard itself against such an event or
circumstance, tends to establish that the termination was inadvertent.
Section 1.1362-4(d) provides, in part, that the Commissioner may require any
adjustments that are appropriate. In general, the adjustments should be consistent with
the treatment of the corporation as an S corporation during the period specified by the
Commissioner.
CONCLUSION
Based solely on the facts submitted and the representations made, we conclude
that X’s S corporation election terminated on D4. We also conclude that the
circumstances resulting in the termination were inadvertent within the meaning of
§ 1362(f). Accordingly, under § 1362(f), X will be treated as an S corporation from D4
and thereafter, provided X’s S corporation election was otherwise valid and has not
otherwise terminated under §1362(d).

PLR-112163-14
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Except as specifically ruled above, we express no opinion concerning the federal
tax consequences of the facts described above under any other provisions of the Code.
Specifically, we express no opinion regarding X’s eligibility to be an S corporation.
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,
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