IRS written determination 202634010

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: 202634010
Release Date: 8/21/2026
Index Number: 1361.03-03, 1362.00-00,
1362.02-02, 1362.04-00

----------------------------------------
---------------------------------------
--------------------
--------------------------
-----------------------------------------------------------

Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
---------------------------, ID No. ---------------
-----------------
Telephone Number:
---------------------
Refer Reply To:
CC:PT&E:B01
PLR-120307-25
Date:
May 22, 2026

LEGEND

X = -----------------------------------------------
-----------------------

State = ----------

Date 1 = -------------------

Date 2

= ---------------------
Date 3 = -----------------------

Date 4 = ---------------------

Trust 1

= -----------------------------------------------
-----------------------

Trust 2 = -----------------------------------------------
-----------------------

Trust 3

= -----------------------------------------------
-----------------------
Trust 4

= -----------------------------------------------
-----------------------

Trust 5 = -----------------------------------------------
-----------------------

PLR-120307-25

2

Trust 6

= -----------------------------------------------
-----------------------
n = -----------------

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

This ruling is in response to a letter dated November 20, 2025, and subsequent
correspondence, submitted on behalf of X by X’s authorized representatives, requesting
relief under § 1362(f) of the Internal Revenue Code (“Code”).

FACTS

The information submitted states that X was incorporated on Date 1 under the laws of
State and filed an election under § 1362(a) to elect to be treated as an S corporation
effective Date 1. Shares of X were transferred to Trust 1 and Trust 2 on Date 2, to Trust
3 and Trust 4 on Date 3, and to Trust 5 and Trust 6 on Date 4.

X represents that, at all times beginning on Date 2 (for Trust 1 and Trust 2), Date 3 (for
Trust 3 and Trust 4), and Date 4 (for Trust 5 and Trust 6), the trusts met the
requirements of Electing Small Business Trusts (“ESBT”) within the meaning of
§ 1361(e)(1)(A). However, the trustees of Trust 1, Trust 2, Trust 3, Trust 4, Trust 5, and
Trust 6 inadvertently failed to file timely elections under § 1361(e)(3) for the trusts to be
treated as ESBTs. Therefore, X’s S corporation election terminated effective Date 2.
Furthermore, the failure of the respective trustees to make the ESBT elections for Trust
3 and Trust 4 on Date 3 or for Trust 5 and Trust 6 on Date 4 would have terminated X’s
S corporation election had it not already been terminated Date 2.

X represents that there was no tax avoidance or retroactive tax planning involved in the
failure of Trust 1, Trust 2, Trust 3, Trust 4, Trust 5, and Trust 6 to file ESBT elections
and the resulting termination of X’s S corporation election was inadvertent. X and its
shareholders agree to make any adjustments required as a condition of obtaining relief
under the inadvertent termination rule as provided under § 1362(f) of the Code that may
be required by the Secretary.

LAW AND ANALYSIS

Section 1361(a)(1) of the Code 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

PLR-120307-25

3
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 is a
permissible 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)(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) provides, in 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).

Section 1.1361-1(m)(2)(iii) provides that the ESBT election must be filed 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(d)(2)(A) provides that an election under § 1362(a) shall be terminated
whenever (at any time on or after the 1st day of the 1st taxable year for which the
corporation is an S corporation) such corporation ceases to be a small business
corporation.

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 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,

PLR-120307-25

4
notwithstanding the circumstances resulting in such termination, such corporation shall
be treated as an S corporation during the period specified by the Secretary.

Section 1.1362-4(d) provides that the Commissioner may require any adjustments that
are appropriate. In general, the adjustments required should be consistent with the
treatment of the corporation as an S corporation during the period specified by the
Commissioner.

CONCLUSION

Based solely on the facts submitted and the representations made, we conclude that X's
S corporation election terminated on Date 2 because ESBT elections were not filed for
Trust 1 and Trust 2. We further conclude that if the S corporation election had not
terminated on Date 2, it would have terminated on Date 3, because of the failures of the
trustees to make ESBT elections for Trust 3 and Trust 4, or on Date 4, because of the
failures of the trustees to make ESBT elections for Trust 5 and Trust 6. The termination
of X's S election was inadvertent within the meaning of § 1362(f). Accordingly, X will be
treated as an S corporation effective Date 2, and thereafter, provided X's S corporation
election was otherwise valid and not otherwise terminated under § 1362(d).

This ruling in contingent upon: 1) the trustees of Trust 1 and Trust 2 filing appropriately
completed ESBT elections for Trust 1 and Trust 2 effective Date 2, and upon Trust 1
and Trust 2 and their beneficiaries filing timely amended federal income tax returns for
all open years consistent with the treatment of Trust 1 and Trust 2 as ESBTs effective
Date 2; 2) the trustees of Trust 3 and Trust 4 filing appropriately completed ESBT
elections for Trust 3 and Trust 4 effective Date 3, and upon Trust 3 and Trust 4 and their
beneficiaries filing timely amended federal income tax returns for all open years
consistent with the treatment of Trust 3 and Trust 4 as ESBTs effective Date 3; and
3) the trustees of Trust 5 and Trust 6 filing appropriately completed ESBT elections for
Trust 5 and Trust 6 effective Date 4, and upon Trust 5 and Trust 6 and their
beneficiaries filing timely amended federal income tax returns for all open years
consistent with the treatment of Trust 5 and Trust 6 as ESBTs effective Date 4.

The election must be made and the amended returns must be timely filed with the
appropriate service center within 120 days following the date of this letter. A copy of
this letter should be attached to the returns.

Additionally, as an adjustment under § 1362(f)(4), a payment of $n with a copy of this
letter within 45 days from the date of this letter must be sent to the following address:
Internal Revenue Service
Kansas City Service Center
333 W. Pershing Road,
Kansas City, MO 64108
Stop 7777
Attn: Manual Deposit.

PLR-120307-25

5
If the above conditions are not met, then this ruling is null and void. Furthermore, if
these conditions are not met, X must notify the service center with which it filed its S
corporation election that its S corporation election terminated Date 2.

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 or Trust 1, Trust 2, Trust 3, Trust 4, Trust 5, and Trust 6’s eligibility to be
ESBTs.

The ruling contained in this letter is based on information and representations submitted
by the taxpayer and accompanied by a penalty of perjury statement executed by the
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.

This ruling is directed only to the taxpayer requesting 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, a copy of this letter is
being sent to the taxpayer's authorized representatives.

Sincerely,

_____________________________
Caroline E. Hay
Senior Technician Reviewer, Branch 1
Office of the Associate Chief Counsel
(Passthroughs, Trusts, and Estates)
Enclosure
Copy for § 6110 purposes

PLR-120307-25

6
cc: ---------------------
------------------------
--------------------------------------
----------------------------
---------------------------

---------------------
--------------------------------
----------------------------------
------------------------------------------
---------------------------

----------------------------------
---------
------------