IRS written determination 201536014

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: 201536014
Release Date: 9/4/2015
Index Number: 1362.04-00
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Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
--------------------------, ID No. ----------------
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Telephone Number:
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Refer Reply To:
CC:PSI:B03
PLR-144812-14
Date:
June 02, 2015
Legend
X=--------------------------------------------------------------------------
State=--------
D1=------------------------
D2=---------------------------
D3=------------------
D4=------------------
A=------------------------------------------------------------------------------------------
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Dear -------------:
This letter responds to a letter dated October 31, 2014, and subsequent
correspondence, submitted on behalf of X by its authorized representative, requesting a
ruling under § 1362(f) of the Internal Revenue Code (Code).
FACTS
The information submitted states that X was organized under the laws of State
on D1 and elected to be an S corporation effective D2.

PLR-144812-14
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X’s S corporation election terminated on D3 when one of X’s shareholders
transferred shares of X to A, an ineligible shareholder. On D4, shortly after X learned of
the termination of X’s S corporation election due to the transfer of stock to an ineligible
shareholder, X redeemed A’s shares.
X represents that, as of D3, the shareholders of X were not aware that A was
prohibited from owning shares of X, and that such a transaction would terminate X’s S
corporation election. X also represents that the shareholders of X did not intend to
terminate X’s S corporation election. X and its shareholders have agreed to make any
adjustments that the Commissioner may require, consistent with the treatment of X as
an S corporation.
LAW AND ANALYSIS
Section 1362(a) provides that, except as provided in § 1362(g), a small business
corporation may elect, in accordance with the provisions of § 1362, to be an S
corporation.
Section 1361(a)(1) provides that the term “S corporation” means, with respect to
any taxable year, asmall 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 1362(d)(2)(A) provides that an election under §1362(a) will 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 corporationceases 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 terminated under § 1362(d)(2) or (3), (2) the Secretary
determines that the circumstances resulting in the termination were inadvertent, (3) no
later than a reasonable period of time after discovery of the circumstances resulting in
the termination, steps were taken (A) so that the corporation is a small business
corporation, 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,

PLR-144812-14
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notwithstanding the circumstances resulting in the 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 X’s S corporation election terminated on D3 when shares of X were transferred to
an ineligible shareholder. We also conclude that the circumstances resulting in the
termination were inadvertent within the meaning of §1362(f). Accordingly, under
§ 1362(f), X will be treated as an S corporation from D3 and thereafter, provided X’s S
corporation election was otherwise valid and has not otherwise terminated under
§ 1362(d) for reasons not addressed in this letter.
This ruling is conditioned on the shareholders of X from D3 to D4, other than A,
being treated as theowners of X stock that was held by A in proportion to their
ownership interests in X. X and its shareholders must amend any prior federal tax
returns that are inconsistent with this treatment before the earlier of the expiration of the
statute of limitations of any tax year affected by the granting of the requested relief or
120 days of the date of this letter.
Except as specifically ruled above, we express or imply no opinion concerning
the federal tax consequences of the facts described above under anyother provisions
of the Code. Specifically, we express no opinion regarding X’s eligibility to be an S
corporation.
This ruling is directed only to the taxpayer that requested it. Section 6110(k)(3)
of the Code provides that it may not be used or cited as precedent.
In accordance with a power of attorney on file with this office, we are sending a
copy of this letter to X’s authorized representative.
Sincerely,
Holly Porter
Branch Chief, Branch 3
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)
Enclosures (2):
Copy of this letter
Copy for §6110 purposes
cc: