IRS written determination 202627013

us-irs-private-letter-rulings-202627013IRS written determination 202627013Guidance

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: 202627013
Release Date: 7/2/2026
Index Number: 1362.00-00, 1362.04-00

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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:PT&E:B01
PLR-119913-25

Date:
April 03, 2026
Legend

X = ---------------------------
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Sub = ---------------------------
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State 1 = ------

State 2 = -------------

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

Date 2 = ----------------------

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

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

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

This responds to a letter dated November 21, 2025, submitted on behalf of X by
its authorized representatives, requesting a ruling under § 1362(f) of the Internal
Revenue Code (Code).

PLR-119913-25

2
FACTS

According to the information submitted, Sub was organized under the laws of
State 1 on Date 1 and made an election to be an S corporation effective Date 1. X was
organized under the laws of State 2 on Date 2 and made an election to be an S
corporation effective Date 2. On Date 2, as part of what X represents was a
reorganization under § 368(a)(1)(F), Sub's shareholders contributed all their stock in
Sub to X, thereby causing Sub to become a wholly owned subsidiary of X. Sub then
converted to a limited liability company under State 2 law on Date 3, and by default was
treated as a disregarded entity for federal tax purposes. Afterwards, on Date 4, X made
an election to treat Sub as a qualified subchapter S subsidiary (“QSub”) effective Date
2. However, X discovered that its election to treat Sub as a QSub was ineffective due to
Sub's failure to meet all the requirements of § 1361(b)(3)(B) at the time the election was
made (i.e., Date 4).

X represents that the ineffective QSub election for Sub was inadvertent and not
the result of tax avoidance or retroactive tax planning. X further represents that no
federal tax return of any person has been filed inconsistent with a valid QSub election
having been made for Sub effective Date 2. Sub and X have agreed to make any
adjustments required by the Service consistent with the treatment of Sub as a QSub.

LAW AND ANALYSIS

Section 1361(b)(3)(A) provides that, except as provided in regulations prescribed
by the Secretary, for purposes of the Code (i) a corporation which is a QSub shall not
be treated as a separate corporation, and (ii) all assets, liabilities, and items of income,
deduction, and credit of a QSub shall be treated as assets, liabilities, and such items (as
the case may be) of the S corporation.

Section 1361(b)(3)(B) provides that the term “QSub” means any domestic
corporation which is not an ineligible corporation (as defined in § 1361(b)(2)), if (i) 100
percent of the stock of such corporation is held by the S corporation, and (ii) the S
corporation elects to treat such corporation as a QSub.

Section 1.1361-3(a)(1) of the Income Tax Regulations provides that the
corporation for which a QSub election is made must meet all the requirements of
§ 1361(b)(3)(B) at the time the election is made and for all periods for which the election
is to be effective.

Section 1362(f) provides that if (1) an election under § 1362(a) or
§ 1361(b)(3)(B)(ii) by any 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 to obtain shareholder consents or (B) was terminated
under § 1362(d)(2) or (3) or § 1361(b)(3)(C), (2) the Secretary determines that the
circumstances resulting in the ineffectiveness or termination were inadvertent, (3) no

PLR-119913-25

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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 for which
the election was made or the termination occurred is a small business corporation or a
QSub, as the case may be, or (B) to acquire the shareholder consents, and (4) the
corporation for which the election was made or the termination occurred, 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 or a QSub, as the case may be) 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 or a QSub, as the case may be during the period specified
by the Secretary.

CONCLUSION

Based solely on the facts submitted and representations made, we conclude that
X's election to treat Sub as a QSub on Date 2 was ineffective. We also conclude that
the circumstances resulting in the ineffectiveness of the QSub election were inadvertent
within the meaning of § 1362(f). Thus, under the provisions of § 1362(f), Sub will be
treated as a QSub effective Date 2, through Date 3, provided that Sub's QSub election
was otherwise valid and not otherwise terminated under § 1361(b)(3)(C).

Except as expressly provided herein, we express or imply no opinion concerning
the federal tax consequences of any aspect of any transaction or item discussed or
referenced in this letter. Specifically, we express or imply no opinion on whether Sub
was otherwise eligible to be treated as a QSub or on the validity of the reorganization
under § 368(a)(1)(F) or its tax consequences.

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.

Pursuant to a power of attorney on file, a copy of this letter is being sent to your
authorized representative.

Sincerely,

_________/s/_________________
Joy C. Spies
Senior Technician Reviewer, Branch 1
Office of Associate Chief Counsel
(Passthroughs, Trusts, and Estates)

PLR-119913-25

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Enclosure:

Copy of this letter for section 6110 purposes

cc:
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