IRS written determination 201546004

us-irs-private-letter-rulings-201546004IRS written determination 201546004Guidance

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: 201546004
Release Date: 11/13/2015
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-104992-15
Date:
August 10, 2015
LEGEND:
X=-------------------------------------------------------------------------------------------------------------------
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GRAT 1= -------------------------------------------------------------------------------------------------------------------
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GRAT 2=-------------------------------------------------------------------------------------------------------------------
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State=---------------
Date 1=--------------------------
Date 2=---------------------------
Date 3=
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Date 4=----------------------------
Date 5=---------------------------
Dear----------------
This responds to a letter dated January 30, 2015, submitted on behalf of X by its
authorized representatives, requesting a ruling under §1362(f) ofthe Internal Revenue
Code.

PLR-104992-15
2
Facts
The information submitted states that X was incorporated under the laws of Stateon
Date 1. Effective Date 2, X elected to be taxed as an S corporation. On Date 3, shares
of X stock were transferred to GRAT 1and GRAT 2. At the time of the transfer GRAT
1 and GRAT 2were treated as grantor trusts under subpart E of part I of subchapter J
of chapter 1 of the Code.
On Date 4, GRAT 1and GRAT 2ceased to be grantor trusts and eligible S corporation
shareholders; however, GRAT 1and GRAT 2continued to hold shares of X until Date 5
at which point the shares were transferred to eligible S corporation shareholders.
Consequently, X’s S corporation election terminated on Date 4when GRAT 1and
GRAT 2ceased to be eligible Scorporation shareholders.
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 requiredby the Secretary with respect to
the period specified by § 1362(f).
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) isin
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)(i) provides that, for purposes of § 1361(b)(1)(B), a trust all of
which is treated (under subpart E of part I of subchapter J of chapter 1 of the Internal
Revenue Code) as owned by an individual who is a citizen or resident of the United
States may be a shareholder.
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

PLR-104992-15
3
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 representations made, we conclude X’s S
election terminated on Date 4when GRAT 1and GRAT 2ceased to be eligible S
corporation shareholders. We further conclude that the termination was inadvertent
within the meaning of § 1362(f).
Accordingly, under § 1362(f), X will be treated as continuing to be an S corporation from
Date 4and thereafter, provided that X’s S election is valid and not otherwise terminated
under § 1362(d).
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.
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
attorney on file with this office, a copy of this letter is being sent to X’s authorized
representatives.
Sincerely,
Faith P. Colson
Faith P. Colson
Senior Counsel, Branch 1
(Passthroughs & Special Industries)
Enclosures (2)
Copy of this letter
Copy for § 6110 purposes
cc:

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