IRS written determination 201440018

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: 201440018
Release Date: 10/3/2014
Index Number: 1362.04-00, 1362.01-03
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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:B3
PLR-149725-13
Date:
May 29, 2014
Legend
X = ---------------------
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Trust = ------------------------------------------------------

State = ------------
Date 1 = ---------------------
Date 2 = ---------------------
Date 3 = ----------------
Date 4 = -----------------
$n = -----------
Dear ----------------:
This letter responds to a letter dated December 5, 2013, and subsequent
correspondence, written on behalf of X, requesting a ruling under § 1362(f) of the
Internal Revenue Code.
Facts

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2
X was incorporated under the laws of Stateon Date 1. X elected to be an S
corporation effective Date 2. On Date 3, shares of X’s stock were transferred to Trust.
X represents that Trustwas qualified to be an Electing Small Business Trust (ESBT),
withinthe meaning of § 1361(e), however, no election was made under § 1361(e)(3) to
treat Trustas an ESBT. Consequently, Trustwas an ineligible shareholder, and, as a
result, X’s S corporation election terminated on Date 3.
X represents that there was no intent to terminate X’s S corporation election and
that the failure to timely file the ESBT election for Trustwas inadvertent and not
motivated by tax avoidance or retroactive tax planning. In addition, X and X’s
shareholders agree to make any adjustments consistent with the treatment of X as an S
corporation as may be required by the Secretary with respect to the period specified by
§ 1362(f).
Law and Analysis
Section 1362(f) provides, in relevant part, 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
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 of the corporation at any
time duringthe period specified pursuant to § 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 with respect to this period, then, notwithstanding the
circumstances resulting in the termination, the corporation shall be treated as an S
corporation during the period specified by the Secretary.
Section 1.1362-4(d) of the Income Tax Regulations 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 representations made, we conclude that
X’s S corporation election was terminated on Date 3upon the failure to timely file an
ESBT election for Trust. We further conclude that the termination was inadvertent
within the meaning of § 1362(f). Pursuant to the provisions of § 1362(f), X will be
continue to be treated as an S corporation on and after Date 3, unless X’s S corporation
election is otherwise terminated under §1362(d). The trustee of Trustmust file an
ESBT election effective Date 3with the appropriate service center within 120 days of
the date of this letter. A copy of this letter should be attached to the ESBT election.

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3
Accordingly, the shareholders of X must include in their income their pro rata
share of separately stated and nonseparately computed items of X as provided in
§ 1366 and make any adjustments to basis as provided in § 1367, and take into account
any distributions made by X as provided in § 1368. This ruling is contingent upon X and
each of its shareholders filing any original and amended returns andmaking such
adjustments that are necessary to properly reflect the reporting of X’s items of S
corporation income. Specifically, Trustmust file income tax returns and make
adjustments that are necessary to properly reflect the treatment of Trustas an ESBT.
Additionally, as an adjustment under § 1362(f), this ruling is conditioned on the
payment of $n with a copy of this letter ruling sent to the following address:
Internal Revenue Service
Cincinnati Service Center
201 West Rivercenter Blvd.
Covington, KY 41011, Stop 31
Terri Lackey, Manual Deposit.
X must send the payment no later than Date 4.
A copy of this letter must be attached to any income tax return to which it is
relevant. Alternatively, taxpayers filing their returns electronically may satisfy this
requirement by attaching a statement to their return that provides the date and control
number of the letter ruling.
Except for the specific ruling above, no opinion is expressed or implied
concerning the federal tax consequences ofthe facts of this case under any other
provision of the Code. Specifically, no opinion is expressed or implied regarding X’s
eligibility to be an S corporation or Trust’s eligibility to be an ESBT.
The rulings contained in this letter are 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 request for rulings, it is subject to verification on
examination.
This ruling is directed only to the taxpayer who requested it. According to
§ 6110(k)(3), this ruling may not be used or cited as precedent.

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4
Under a power of attorney on file with this office, we are sending a copy of this
letter to your authorized representative.
Sincerely,
Stacy L. Short
Senior Technician Reviewer, Branch 3
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)
Enclosures (2):
A copy of this letter
A copy for § 6110 purposes
cc: