IRS written determination 201550001

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: 201550001
Release Date: 12/11/2015
Index Numbers: 1362.00-00, 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:B3
PLR-102118-15
Date:
July 21, 2015
LEGEND
X = -----------------------------------------
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Y=--------------------------------
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A=----------------------
B=-----------------
State=------------
Date 1=-----------------------
Date 2=--------------------
Date 3=--------------------------
Year =------
n=---
p=---
Dear ----------------:
This letter responds to a letter dated December 16, 2014 and subsequent
correspondence, submitted on behalf of X by X’s authorized representative, requesting
a ruling under §1362(f) of the Internal Revenue Code (“Code”).

PLR-102118-15
2
FACTS
The information submitted states that X was incorporated under the laws of Stateon
Date 1, and elected to be an S corporation effective Year. On Date 2, A, an individual
and sole owner of X stock, transferred n% of the shares of X stock to B, an individual,
and p% of X stock to Y, an S corporation. Y was an ineligible S corporation shareholder
under §1361(b)(1)(B). Accordingly, X’s S corporation election was terminated on Date
2. X and its shareholders were not aware that the transfer of X stock to Y would
terminate X’s S corporation election. On Date 3, B transferred all of his stock to Y. As
100% owner of X, Y could make a QSub electionunder §1361(b)(3)(B).
X represents that X and its shareholders have filed tax returns consistent with X being
an S corporation from Date 2to Date 3. X further represents that the circumstances
resulting in the termination of X’s S corporation electionwere inadvertent and were not
motivated by tax avoidance or retroactive tax planning. X and its shareholders have
agreed to make adjustments consistent with the treatment of X as an S corporation as
may be required by the Secretary.
LAW
Section 1361(a)(1) defines an “S corporation” as a small business corporation for which
an election under §1362(a) is in effect for the taxable 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 1362(d)(2) 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. A termination of an S corporation election under §1362(d)(2) is effective on
and after the date of cessation.
Section 1362(f) provides, in part, that if (1) an election under §1362(a) by a corporation
(A) 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) or to obtain
shareholder consents or (B) was terminated under §1362(d)(2) or (3), (2) the Secretary
determines that the circumstances resulting in the ineffectiveness or termination were
inadvertent, (3) no later than a reasonable period of time after discovery of the
circumstances resulting in the ineffectiveness or termination, steps were taken (A) so
that the corporation is a small business corporation or (B) to acquire the 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

PLR-102118-15
3
corporation) as may be required by the Secretary with respect to such period, then,
notwithstanding the circumstances resulting in the ineffectiveness or termination, the
corporation will 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
the termination of X’s S corporation election on Date 2was inadvertent within the
meaning of §1362(f). We further hold that, pursuant to the provisions of §1362(f), X will
be treated as continuing to be an S corporation from Date 2to Date 3, provided that X’s
S corporation election was valid and provided that the election was not otherwise
terminated under §1362(d).
Except as specifically set forth above, we express or imply no opinion concerning the
federal tax consequences of the facts described above under any other provision of the
Code. Specifically, we express or imply no opinion regarding X’s eligibility to be an S
corporation or the validity of its S corporation election.
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.
The ruling contained in this letter is based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. While this office has not verified any of the material submitted
in support of the ruling request, it is subject to verification on examination.
In accordance withthe power of attorney on file with this office, we are sending a copy
of this letter to X’s authorized representative.
Sincerely,
Richard Probst
Senior Technician Reviewer, Branch 3
Office of Associate Chief Counsel
(Passthroughs & Special Industries)
Enclosures (2)
Copy of this letter
Copy for § 6110 purposes
cc: