IRS written determination 202607012

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: 202607012
Release Date: 2/13/2026
Index Number: 1361.03-02, 1362.00-00,
1362.02-00, 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:PT&E:01
PLR-111553-25, PLR-111554-25
Date:
November 17, 2025

LEGEND

X = ----------------------------------------------------
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Y = ----------------------------------------------------
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Trust = ----------------------------------------------------
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A = ----------------------------------------------------
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Date 1 = ----------------------
Date 2 = ---------------------------
Date 3 = ---------------------------
Date 4 = -------------------
Date 5 = -----------------
Date 6 = -----------------
State = -----------

Dear --------------:

This letter responds to a letter dated June 10, 2025, submitted on behalf of X and Y by
their authorized representative, requesting relief under § 1362(f) of the Internal Revenue
Code (Code).

PLR-111553-25, PLR-111554-25

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FACTS

According to the information submitted and representations within, X was incorporated
under the laws of State on Date 1 and filed an election under § 1362(a) of the Code to
be treated as an S corporation effective the same date.

According to the information submitted and representations within, Y was incorporated
under the laws of State on Date 2 and filed an election under § 1362(a) of the Code to
be treated as an S corporation effective Date 3.

A was a shareholder in both X and Y. On Date 4, A died. Pursuant to A’s will, A’s stock
in X and Y were bequeathed to Trust on Date 5. X and Y represent that Trust was
eligible to make an election to be treated as a qualified subchapter S trust (QSST)
under § 1361(d) on and after Date 5. However, the beneficiary of Trust failed to make a
QSST election effective Date 6. Consequently, Trust became an ineligible shareholder
of X and Y, causing their S corporation elections to terminate on Date 6.

X and Y represent that they and their shareholders have filed tax returns consistent with
being S corporations for all relevant periods. X and Y further represent that the
circumstances resulting in the termination of their S corporation elections were
inadvertent and were not motivated by tax avoidance or retroactive tax planning. X, Y,
and their shareholders agree to make any adjustments (consistent with the treatment of
X and Y as S corporations) as 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) provides that the term “small business corporation” means 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 one class of stock.

Section 1361(c)(2)(A)(iii) provides that, for purposes of § 1361(b)(1)(B), a trust with
respect to stock transferred to it pursuant to the terms of a will may be a permitted
shareholder, but only for the 2-year period beginning on the day on which such stock is
transferred to it.

Section 1361(d)(1) provides that in the case of a QSST with respect to which a
beneficiary makes an election under § 1361(d)(2), the trust is treated as a trust
described in § 1361(c)(2)(A)(i), and for purposes of § 678(a), the beneficiary of such

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trust shall be treated as the owner of that portion of the trust which consists of stock in
an S corporation with respect to which the election under § 1361(d)(2) is made.

Section 1361(d)(3) defines a QSST as a trust, (A) the terms of which require that (i)
during the life of the current income beneficiary, there shall be only one income
beneficiary of the trust, (ii) any corpus distributed during the life of the current income
beneficiary may be distributed only to such beneficiary, (iii) the income interest of the
current income beneficiary in the trust shall terminate on the earlier of such beneficiary's
death or the termination of the trust, and (iv) upon the termination of the trust during the
life of the current income beneficiary, the trust shall distribute all of its assets to such
beneficiary, and (B) all of the income (within the meaning of § 643(b)) of which is
distributed (or required to be distributed) currently to one individual who is a citizen or
resident of the United States.

Section 1362(d)(2)(A) 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 the
corporation is an S corporation) such corporation ceases to be a small business
corporation. Section 1362(d)(2)(B) provides that any termination under § 1362(d)(2)(A)
is effective on and after the date of cessation.

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) or
to obtain shareholder consents or was terminated under § 1362(d)(2), (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 discovery of the
circumstances resulting in such ineffectiveness or termination, steps were taken so that
the corporation for which the election was made or the termination occurred is a small
business corporation or to acquire the required shareholder consents, and (4) the
corporation for which the election was made or 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
ineffectiveness or termination, such corporation shall be treated as an S corporation
during the period specified by the Secretary.

CONCLUSION

Based solely on the information submitted and the representations made, we conclude
that X's and Y’s S corporation elections terminated on Date 6, when Trust became an
ineligible shareholder. We further conclude that the terminations of X's and Y’s S
elections were inadvertent within the meaning of § 1362(f). Therefore, pursuant to the
provisions of § 1362(f), X and Y will be treated as S corporations from Date 6 and

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thereafter, provided X's and Y’s S corporation elections are otherwise effective and not
terminated under § 1362(d).

This relief is contingent on the beneficiary of Trust filing a QSST election with the
appropriate service center within 120 days from the date of this letter effective Date 6. A
copy of this letter should be attached to the QSST election and any amended returns.
Furthermore, if these conditions are not met, X and Y must notify the service center
where X's and Y’s S corporation elections are filed that their S corporation elections
have terminated effective Date 6.

Except as specifically ruled 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 whether X and Y are
otherwise eligible to be S corporations or whether Trust is otherwise eligible to be a
QSST.

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 upon examination.

This ruling is directed only to the taxpayers who requested it. Section 6110(k)(3) of the
Code provides that it may not be used or cited as precedent.

In accordance with the power of attorney on file with this office, we are sending copies
of this letter to X and Y’s authorized representative.

Sincerely,

___________________________

Christiaan T. Cleary
Senior Technician Reviewer, Branch 1
Office of the Associate Chief Counsel
(Passthroughs, Trusts, and Estates)

Enclosure
Copy of this letter for section 6110 purposes

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cc: ---------------
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