IRS written determination 201549002

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: 201549002
Release Date: 12/4/2015
Index Number: 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-100345-15
Date:
June 30, 2015
LEGEND
X=--------------------------------------
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Trust=-----------------------------------------------------------------------------------------
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Date 1=--------------------
Date 2=----------------------
Date 3=----------------------
Years=---------------
State=--------
PLR1=------------------------------------------
Dear ---------------:
This responds to a letter dated December 18, 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.
FACTS

PLR-100345-15
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According to the information submitted, X was incorporated on Date 1, under the laws of
State. Effective Date 2, X elected to be treated as an S corporation.
On Date 3, Trust acquired shares of X. X represents that Trusthas at all times since
Date 3met the requirements of an Electing Small Business Trust (ESBT) except that
the trustees of Trustdid not make a timely ESBT election under §1361(e)(3), thus
causing X’s S corporation election to terminate effective Date 3.
X represents that X and its shareholders have treated X as an S corporation at all
relevant times, and that Trusthas received a K-1 from X for Yearsbut that Trustdid not
file its returns consistent with being an ESBT.
X represents that the failure to file an ESBT election for Trustwas 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 § 1362(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
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

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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, in relevant part, 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). Generally, only one ESBT election is
made for the trust, regardless of the number of S corporations whose stock is held by
the ESBT. However, if the ESBT holds stock in multiple S corporations that file in
different service centers, the ESBT election must be filed with all the relevant service
centers where the corporations file their income tax returns. This requirement applies
only at the time of the initial ESBT election; if the ESBT later acquires stock in an S
corporation which files in a different service center, a new ESBT election is not required.
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 not effective for the taxable year for which made (determined without
regard to § 1362(b)(2)) by reason of a failure to meet the requirements of § 1361(b); (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
discoveryof the circumstances resulting in such ineffectiveness or 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 personwho 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
ineffectiveness or 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 3because of the failure of Trustto timely file an
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

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corporation effective Date 3and 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. No later than 120 days from the
date of this letter: (1) X must fully comply with the adjustment payment requirement as
outlined in PLR1; (2) an election to treat Trustas an ESBT, effective Date 3, must be
made with the appropriate service center; and (3) X and each of its shareholders must
file any original and amended returns for all open taxable years consistent with the relief
granted in this letter. A copy of this letter should be attached to the ESBT election. 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 the
service 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 express or imply no opinion regarding X’s eligibility to be an S
corporation.
This ruling isdirected 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 file with this office, we are sending a copy of this
letter to your authorized representatives.
Sincerely,
Joy C. Spies
Joy C. Spies
Senior Technician Reviewer, Branch 1
Office of Chief Counsel
(Passthroughs & Special Industries)
Enclosures (2)
Copy of this letter
Copy of this letter for section 6110 purposes