IRS written determination 201519016

us-irs-private-letter-rulings-201519016IRS written determination 201519016Guidance

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: 201519016
Release Date: 5/8/2015
Index Number: 1362.00-00, 1362.01-00,
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-135233-14
Date:
January 28, 2015
Legend:
X=-----------------------------------------------------
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Y=---------------------------------------------------
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Date 1=------------------------
Date 2=---------------------
State=------------
Dear ---------------:
This letter responds to a letter dated September 16, 2014, and subsequent
correspondence, written on behalf of X, requesting a ruling under § 1362(f) of the
Internal Revenue Code.
Facts
The information submitted states that X was incorporated under the laws of Stateand
made an election to be treated as an S corporation effective Date 1. On Date 2, X
intended to acquire all of the outstanding shares of Y and made an election to treat Y as
a qualified subchapter S subsidiary (QSub) effective Date 2. X's election to treat Y as a
QSub was inadvertently invalid on Date 2because X did not own 100% of Y stock. In
order for X to own 100% of Y stock, X proposesa transaction under §§368(a)(1)(D)

PLR-135233-14
2
and 355.
X represents that the invalid election was not motivated by tax avoidance or retroactive
tax planning. X and its shareholders agree to make any adjustments that the
Commissioner may require, consistent with the treatment of X as an S corporation.
Law and Analysis
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)(B) provides that, for purposes of subchapter S, the term “small
business corporation” means a domestic corporation that is not an ineligible corporation
and that does not, among other requirements, 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.
Section 1361(b)(3)(B) defines a QSub as a domestic corporation that is not an ineligible
corporation, if 100 percent of the stock of the corporation is owned by an S corporation,
and the S corporation elects to treat the corporation as a QSub.
Section 1362(d)(2)(A) provides that an election under § 1362(a) shall be terminated
whenever (at any time on or after the first day of the first taxable year for which a
corporation is an S corporation) such corporation ceases to be a small business
corporation. Section 1362(d)(2)(B) provides that the termination shall be effective on
and after the date of cessation.
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 it was 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 such ineffectiveness or
termination were inadvertent, (3) no later than a reasonable period of time after
discovery of the eventresulting in the ineffectiveness or termination, steps were taken
(A) so that the corporation is a small business corporation, or (B) to acquire the required
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 such ineffectiveness or termination, the
corporation shall be treated as an S corporation during the period specified by the
Secretary.

PLR-135233-14
3
Conclusion
Based solely on the information submitted and the representations made, we conclude
that X's election to treat Y as a QSub was invalid on Date 2, under § 1362(d)(2),
because X did not own all the shares ofY, and that X's election to treat Y as a QSub
was inadvertently invalid within the meaning of § 1362(f). Accordingly, Y will be treated
as a QSub of X as of Date 2and thereafter, provided that X’s election to treat Y as a
QSub is otherwise valid.
Except as specifically ruled upon above, no opinion is expressed as to the federal
income tax consequences of the facts describedabove under any other provision of the
code. In particular, no opinion is expressed or implied as to whether X otherwise
qualifies as a subchapter S corporation under § 1361, whether Y otherwise qualifies as
a qualified subsidiary under § 1361, or whetherthe proposed transaction qualifies under
§§ 368(a)(1)(D) and 355.
This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) of the
Code provides that it may not be used or cited as precedent.
Pursuant to a power of attorney on file with this office, a copy of this letter is being
forwarded to X's authorized representative.
Sincerely,
Laura C. Fields
Laura C. Fields
Senior Technician Reviewer, Branch 1
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)
Enclosures (2):
A copy of this letter
A copy for § 6110 purposes

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