IRS written determination 201546003

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: 201546003
Release Date: 11/13/2015
Index Number: 1362.04-00, 1361.01-02
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Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:B01
PLR-104991-15
Date:
August 10, 2015
LEGEND:
X=--------------------------------------------------------------------------------------------------------------------
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GRAT 1= --------------------------------------------------------------------------------------------------------------------
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GRAT 2= --------------------------------------------------------------------------------------------------------------------
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GRAT 3= --------------------------------------------------------------------------------------------------------------------
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Trust 1=--------------------------------------------------------------------------------------------------------------------
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Trust 2=--------------------------------------------------------------------------------------------------------------------
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State= ---------------
Date 1= ----------------------
Date 2= ----------------------
Date 3= -------------------------
Date 4= ----------------------------

PLR-104991-15
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Date 5= --------------
Date 6= ------------------
Date 7= -------------
Date 8= --------------------------------------------------------
Dear----------------
This responds to a letter dated January 30, 2015, submitted on behalf of X by its
authorized representatives, requesting a ruling under §1362(f) of the Internal Revenue
Code.
Facts
The information submitted states that X was incorporated under the laws of Stateon
Date 1. Effective Date 2, X elected to be taxed as an S corporation. On Date 3, shares
of X stock were transferred to GRAT 1. On Date 4, shares of X stock were transferred
to GRAT 2and GRAT 3. At the time of the transfer GRAT 1, GRAT 2, and GRAT 3
were treated as grantor trusts under subpart E of part I of subchapter J of chapter 1 of
the Code.
On Date 5, the shares of X stock held by GRAT 1were transferred to both Trust 1and
Trust 2, established as successor trusts. Trust 1and Trust 2were intended to be
treated as grantor trusts from Date 5until Date 6. However, Trust 1and Trust 2did not
qualify as grantor trusts during this period. Trust 1and Trust 2met the requirements to
be Electing Small Business Trusts (ESBTs), within the meaning of §1361(e), and ESBT
elections were made for them as of Date 6. Consequently, Trust 1and Trust 2were
ineligible shareholders from Date 5until Date 6, and, as a result, X’s S corporation
election terminated on Date 5.
On Date 7, GRAT 2and GRAT 3ceased to be grantor trusts and eligible S corporation
shareholders; however, GRAT 2and GRAT 3continued to hold shares of X until Date 8
at which point the shares were transferred to eligible S corporation shareholders.
Therefore,X’s S corporation election would have terminated on Date 7(if it had not
already terminated on Date 5) when GRAT 2and GRAT 3ceased to be eligible S
corporation shareholders.
X 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. Additionally, X represents that X and its shareholders have filed their federal

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income tax returns consistent with having a valid S corporation electionin effect for X.
X and its shareholders have agreed 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 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) defines a “small business corporation” as 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 1
class of stock.
Section 1361(c)(2)(A)(i) provides that, for purposes of § 1361(b)(1)(B), a trust all of
which is treated (under subpart E of part I of subchapter J of chapter 1 of the Internal
Revenue Code) as owned by an individual who is a citizen or resident of the United
States may be a shareholder.
Section 1361(c)(2)(A)(v) provides that, for purposes of § 1361(b)(1)(B), an ESBT may
be an S corporation shareholder.
Section 1362(f) provides 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 the
termination, steps were taken 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 under § 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 for that period, then, notwithstanding the circumstances
resulting in such termination, the corporation shall be treated as an S corporation during
the period specified by the Secretary.
Conclusion
Based solely on the facts submitted and representations made, we conclude X’s S
election terminated on Date 5when shares of X were transferred to Trust 1and Trust 2.
We further conclude that the termination was inadvertent within the meaning of
§ 1362(f). Moreover, had X’s S corporation not already terminated, it would have

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terminated on Date 7when GRAT 2and GRAT 3became ineligible shareholders.
Similarly, this terminating event would have been an inadvertent termination within the
meaning of § 1362(f).
Accordingly, under § 1362(f), X will be treated as continuing to be an S corporation from
Date 5and thereafter, provided that X’s S election is valid and not otherwise terminated
under § 1362(d).
Except as specifically ruled above, we express or imply no opinion concerning the
federal tax consequences of the transactions described above under any other
provision of the Code. Specifically, we express or imply no opinion regarding whether X
is otherwise eligible to be an S corporation.
This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3)
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 X’s authorized
representatives.
Sincerely,
Faith P. Colson
Faith P. Colson
Senior Counsel, Branch 1
(Passthroughs & Special Industries)
Enclosures (2)
Copy of this letter
Copy for § 6110 purposes
cc: