IRS written determination 201442047

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: 201442047
Release Date: 10/17/2014
Index Number: 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:B03
PLR-151455-13
Date:
June 24, 2014
LEGEND
X= --------------------------------
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Trust1=------------------------------------------------------------------
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Trust2=----------------------------------------------------------------
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A=-------------------------
B=---------------------------
C= -------------------------
State=------------
Date1=--------------------------
Date2=---------------------
Date3=--------------------
Date4=-----------------

PLR-151455-13
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Date5=---------------------
Year=------
n=-------------
Dear ---------------------:
This responds to a letter dated December 20, 2013, and subsequent
correspondence, submitted on behalf of X by X’s authorized representative, requesting
a ruling under § 1362(f) of the Internal Revenue Code (the Code).
The information submitted states that the predecessor entity of X was
incorporated under the laws of Stateon Date1. On Date3, X elected to be an S
corporation effective Date2. On the effective date of X’s S election, the shareholders of
X consisted of individuals, grantor trusts, and Trust1. X represents that Trust1met all of
the requirements under § 1.1361-1(m)(1) to be treated as an electing small business
trust (“ESBT”) and that the trustees of Trust1timely made the election under
§ 1361(c)(2)(A)(v) to treat Trust1as an ESBT effective on Date2.
Specifically, Trust1was established as an irrevocable trust under the laws of
Stateby A, as settlor, for the benefit of A’s son, B. B was the sole beneficiary of income
and principal under the trust instrument for Trust1, and no other current or contingent
beneficiaries were provided for under the trust instrument. In addition, no interest in
Trust1was acquired by purchase. On Date4, A established Trust2, an irrevocable trust
under the laws of Statefor the benefit of B. X represents that Trust2met all of the
requirements under § 1.1361-1(m)(1) to be treated as an ESBT. B was the sole
beneficiary of income and principal under the trust instrument for Trust2, and no other
current or contingent beneficiaries were provided for under the trust instrument. In
addition, no interest in Trust2was acquired by purchase. X represents that, pursuant to
authority provided under the trust instrument for Trust1, the shares in X held by Trust1
were transferred to Trust2effective Date5. X further represents that each of the then
shareholders of X also expressly consented to this transfer.
X represents that Trust2was established because Trust1did not provide
authority for the original trustees to designate successor trustees. Instead, pursuant to
the trust instrument for Trust1, when both of the original trustees were no longer able to
serve as trustees, the successor trustee would be C or C’s legal successor. Because
Trust1was an irrevocable trust and its terms could not readily be amended, A
established Trust2as a new trust with the same original trustees, but with a new

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provision in the trust instrument for Trust2authorizing the trustees to designate their
successors as trustees.
However, when the trustees transferred the X stock from Trust1to Trust2
effective on Date5, the trustees failed to timely make the election under
§ 1361(c)(2)(A)(v) to treat Trust2as an ESBT effective on Date5. X represents that X
was unaware of the failure of the trustees to make this ESBT election on behalf of
Trust2.
X represents that X and X’s shareholders have filed tax returns consistent with X
being an S corporation since Date2, except for the fact that Trust2 had not filed its
fiduciary income tax returns consistent with it being an ESBT. For the tax year
beginning on Date5, Trust2’sfiduciary income tax return incorrectly indicated that Trust2
was a “Complex Trust” rather than an ESBT. In addition, the items reported on Trust2’s
fiduciary income tax return were reflected on that return consistent with the treatment of
Trust2as a Complex Trust rather than as an ESBT. The same error was repeated in
subsequent tax years for Trust2until Year. X represents that once this mistake was
discovered in Year, Trust2’s fiduciary income tax return has been prepared and filed
consistent with Trust2’s treatment as an ESBT.
X further represents that the circumstances resulting in the termination of X’s S
corporation election were inadvertent and were not motivated by tax avoidance or
retroactive tax planning. X and its shareholders have agreed to make such adjustments
consistent with the treatment of X as an S corporation as may be required by the
Secretary.
Section 1362(f) provides 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 toobtain
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
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.
Based solely on the facts submitted and the representations made, we conclude
that the termination of X’s S corporation election on Date5was inadvertent within the

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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 Date5and thereafter, provided
that X’s S corporation election was valid and provided that the election was not
otherwise terminated under §1362(d) for reasons not addressed in this letter.
Pursuant to the provisions of §1362(f), X will be treated as an S corporation
beginning on Date2, and continuing to be an S corporation on Date5and thereafter,
unless X’s S corporation election otherwise terminated under § 1362(d) for reasons not
stated in this letter, provided that the following conditions are met.
As an adjustment under § 1362(f)(4), a payment of $n and a copy of this letter
must be sent to the following address: Internal Revenue Service, Cincinnati Service
Center, 201 West Rivercenter Blvd., Covington, KY 41001, Stop 31, Terri Lackey,
Manual Deposit. This payment must be sent no later than 45 days from the date of this
letter.
This ruling is contingent upon the trustees of Trust2filing an ESBT election for
Trust2, with an effective date of Date5. The election must be filed with the appropriate
service center within 120 days of the date of this ruling. A copy of this letter should be
attached to the election.
If the above conditions are not met, then this letter ruling is null and void.
Furthermore, if these conditions are not met, X must send a notification that its S
election has terminated to the service center with which X’s S election was filed.
Except as specifically set forth above, no opinion is expressed concerning the
federal tax consequences of the factsdescribed above under any other provision of the
Code. Specifically, no opinion is expressed regarding X’s eligibility to be an S
corporation or the validity of its S corporation election. Further, no opinion is expressed
as to whether Trust1and Trust2qualify as ESBTs, or on the income or transfer tax
consequences of the transfer of X stock from Trust1to Trust2.
This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3)
of the Code provides that it may not be used or cited asprecedent.
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.

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In accordance with the power of attorney on file with this office, a copy of this
letter is being sent to X’s authorized representative.
Sincerely,
Bradford R. Poston
Senior Counsel, Branch 3
Office of Associate Chief Counsel
(Passthroughs & Special Industries)
Enclosures (2)
cc: