IRS written determination 201546001

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: 201546001
Release Date: 11/13/2015
1362.04-00, 1361.03-03
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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-101602-15
Date:
June 30, 2015
Legend
X=-------------------------------------
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Trust 1=----------------------------------------
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Trust 2=------------------------------------------------------
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Date 1=------------------------
Date 2=--------------------
Date 3=----------------------
Years=---------------
State=--------------
$a=----------------------------------------------------------------
Dear --------------:
This responds to a letter dated December 19, 2014, and subsequent correspondence,
submitted on behalf of X by X’s authorized representative, requesting relief under
section 1362(f) of the Internal Revenue Code.

PLR-101602-15
2
FACTS
According to the information submitted, X was incorporated under the laws of Stateand
elected to be treated as an S corporation effective Date 1. On Date 2, X shares were
transferred to Trust 1. On Date 3, X shares were transferred to Trust 2. X represents
that Trust 1and Trust 2have at all times met the requirements of an Electing Small
Business Trust (ESBT) except that the trustees of Trust 1and Trust 2did not make
timely ESBT elections under §1361(e)(3).
X represents that X and its shareholders have treated X as an S corporation at all
relevant times. X represents that the failure to file ESBT elections for Trust 1and Trust
2 was inadvertent and was not motivated by tax avoidance or retroactive tax planning.
Further, X represents that X and its shareholders agree to make any adjustments
(consistent with the treatment of X as an S corporation) that may be required by the
Secretary.
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) defines a “small business corporation” as 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 1
class of stock.
Section 1361(c)(2)(A)(v) provides that, for purposes of § 1361(b)(1)(B), an ESBT may
be an S corporation shareholder.
Section 1361(e)(1)(A) provides that 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) an election
under § 1361(e) applies to such trust.
Section 1361(e)(1)(B) provides that an ESBT does not include (i) any qualified
subchapter S trust (as defined in § 1361(d)(3)) if an election under § 1361(d)(2) applies

PLR-101602-15
3
to any corporation the stock of which is held by such trust, (ii) any trust exempt from tax
under subtitle A, and (iii) any charitable remainder annuity trust or charitable remainder
unitrust (as defined in § 664(d)).
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 trustee of an
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
§ 1.1361-1(m)(2)(ii).
Section 1.1361-1(m)(2)(iii) provides that the trustee of an ESBT must file the ESBT
election within the time requirements prescribed in § 1.1361-1(j)(6)(iii) for filing a QSST
election (generally within the 16-day-and-2-month period beginning on the day that the
stock is transferred to the trust).
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 such termination were inadvertent; (3) no later than a
reasonable period of time after discovery of the circumstances resulting in such
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 in such corporation at any time
during the period specified pursuant to § 1362(f), agrees to make the adjustments
(consistent with the treatment of such corporation as an S corporation) as may be
required by the Secretary with respect to such period, then, notwithstanding the
circumstances resulting in such termination, such 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 election terminated on Date 2because of the failure to timely file an ESBT
election for Trust 1. In addition, we conclude that X’s S election would have terminated
on Date 3if it had not already terminated on Date 2because of the failure of Trust 2to
file a timely ESBT election. We further conclude that the termination of X’s S election
was inadvertent within the meaning of § 1362(f). Therefore, X will be treated as an S
corporation effective Date 2and thereafter, provided X’s S corporation election is
otherwise valid and not otherwise terminated under § 1362(d).
This letter ruling is subject to the following conditions. Within 120 days of the date of

PLR-101602-15
4
this letter: (1) An adjustmentpayment in the amount of $a and a copy of this letter must
be sent to the following address: Internal Revenue Service, Cincinnati Service Center,
201 West Rivercenter Blvd., Covington, KY 41011, Stop 31, Terri Lackey, Manual
Deposit; (2) an election to treat Trust 1as an ESBT, effective Date 2, must be made
with the appropriate service center; (3) an election to treat Trust 2as an ESBT, effective
Date 3, must be made with the appropriate service center; and (4) X and its
shareholders must amend their tax returns for Yearsconsistent with the relief granted in
this letter. A copy of this letter should be attached to the ESBT elections. If these
conditions are not met, then this ruling is null and void. Furthermore, if these conditions
are not met, X must send notification that its S election has terminated to theservice
center with which X’s S election was filed.
Except as specifically ruled upon above, we express or imply no opinion concerning the
federal tax consequences of the facts of this case under any other provision of the
Code. Specifically, we expressor imply no opinion regarding X’s eligibility to be an S
corporation.
This ruling is directed only to the taxpayer who requested it. According to § 6110(k)(3),
this ruling may not be used or cited as precedent.
Pursuant to the power of attorney on filewith this office, we are sending a copy of this
letter to your authorized representative.
Sincerely,
Joy C. Spies
Joy C. Spies
Senior Technician Reviewer
Office of the Chief Counsel
(Passthroughs & Special Industries)
Enclosures (2)
Copy of this letter
Copy of this letter for section 6110 purposes
cc: