IRS written determination 201528037

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: 201528037
Release Date: 7/10/2015
Index Number: 1362.04-00, 1361.01-02
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Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:B01
PLR-146340-14
Date:
March 26, 2015
LEGEND:
X=-------------------------------------------------------------------------------------------------------------
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Trust 1=-----------------------------------------------------------------------------------------------------
Trust 2= -------------------------------------------------------------------------------------------------------------
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Trust 3=-------------------------------------------------------------------------------------------------------------
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State=------
Date 1=-----------------
Date 2=---------------------
Date 3=
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Dear---------------
This responds to a letter dated December 19, 2014, submitted on behalf of X by its
authorized representatives, requesting a ruling under §1362(f) of the Internal Revenue
Code.

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2
Facts
The information submitted states that X was incorporated under the laws of State.
Effective Date 1, X elected to be taxed as an S corporation. On Date 2, shares of X
stock were transferred to Trust 1, Trust 2and Trust 3. Also, on Date 3, additional shares
of X were transferred to Trust 1, Trust 2and Trust 3. X represents that Trust 1, Trust 2
and Trust 3meet the requirements to be treated as qualified subchapter S trusts
(QSSTs) as described in § 1361(d) as of Date 2, except the respective income
beneficiaries of Trust 1, Trust 2and Trust 3failed to make the required election under
§ 1361(d)(2). Therefore, Trust 1, Trust 2and Trust 3were not eligible S corporation
shareholders and as a result, X’s S corporation election terminated on Date 2.
Furthermore, X’s S corporation election would have terminated on Date 3(if it had not
already terminated on Date 2) due to the additional transfers of X stock to Trust 1, Trust
2 and Trust 3.
X represents that the circumstances resulting in the termination of X’s S corporation
election were inadvertent and were not motivated by tax avoidance or retroactive tax
planning. Additionally, X represents that X and its shareholders have filed their federal
income tax returns consistent with having a valid S corporation election in effect for X.
X and its shareholders have agreed to make any adjustments consistent with the
treatment of X as an S corporation as may be required by the Secretary
with respect to the period specified by § 1362(f).
Law and Analysis
Section 1361(a)(1) provides that theterm “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 a “small business corporation” means a domestic
corporation that is not an ineligible corporation and that does not 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(c)(2)(A)(i) provides that,for the purposes of §1362(b)(1)(B), a trust all of
which is treated (under title 26, subtitle A, chapter 1, subchapter J, part I, subpart E of
the United States Code) as owned by an individual who is a citizen or resident of the
United States may be a shareholder of an S corporation.
Section 1361(d)(1) provides that, in the case of a qualified subchapter S trust with
respect to which a beneficiary makes an election under § 1361(d)(2), (A) such trust will
be treated as a trust described in § 1361(c)(2)(A)(i), and (B) for purposes of § 678(a),
the beneficiary of such trust shall be treated as the owner of that portion of the trust

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3
which consists of stock in an S corporation with respect to which the election under
§ 1361(d)(2) is made.
Section 1362(f) provides 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 such 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 is 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 under § 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 for that period, then, notwithstanding the circumstances
resulting in such 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 representation made, we conclude X’s S
election terminated on Date 2when the stock in X was transferred to Trust1, Trust 2
and Trust 3because the income beneficiaries of Trust 1, Trust 2and Trust 3failed to
timely file the required QSST elections under § 1361(d)(2). We further conclude that
the termination of X’s S corporation election was inadvertent within the meaning of
§ 1362(f). Moreover, had X’s S corporation not already terminated, it would have
terminated on Date 3when the additional shares of X were transferred to Trust 1, Trust
2 and Trust 3. Similarly, this terminating event would have been an inadvertent
termination within the meaning of § 1362(f).
Accordingly, under § 1362(f), X will be treated as continuing to be an S corporation from
Date 2and thereafter, provided that X’s S election is valid and not otherwise terminated
under § 1362(d).
This relief is contingent upon the income beneficiaries of Trust 1, Trust 2and Trust 3
filing a QSST election for their respective trust effective Date 2within 120 days from the
date of this letter. A copy of this letter should be attached to each QSST election.
Except as specifically ruled above, we express or imply no opinion concerning the
federal tax consequences of the transactions described above under any other
provision of the Code. Specifically, we express or imply no opinion regarding whether X
is otherwise eligible to be an S corporation or whether Trust 1, Trust 2and Trust 3are
eligible to be treated as QSSTs.
This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3)
provides that it may not be used or cited as precedent. In accordance with the power of

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attorney on file with this office, a copy of this letter is being sent to X’s authorized
representatives.
Sincerely,
Laura C. Fields
Laura C. Fields
Senior Technician Reviewer, Branch 1
(Passthroughs & Special Industries)
Enclosures (2)
Copy of this letter
Copy for § 6110 purposes
cc: