IRS written determination 201424021

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: 201424021
Release Date: 6/13/2014
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:B02
PLR-150982-13
Date:
March 04, 2014
LEGEND:
X=--------------------------------------------------------------------------------------------------------------------
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Trust 1= --------------------------------------------------------------------------------------------------------------------
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Trust 2= --------------------------------------------------------------------------------------------------------------------
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State= -----------
Date 1= ------------------
Date 2= ---------------------
Dear--------------
This responds to a letter dated December 5, 2013, submitted on behalf of X by its
authorized representatives, requesting a ruling under §1362(f) of the Internal Revenue
Code.
The information submitted states that X was incorporated under the laws of State
on Date 1. Effective Date 1, X elected to be taxed as an S corporation. On Date 2,
shares of X stock were transferred to Trust 1and Trust 2. X represents that Trust 1and
Trust 2meet the requirements to be treated as qualified subchapter S trusts (QSSTs)
as described in § 1361(d) as of Date 2, except the respective income beneficiaries of
Trust 1and Trust 2failed to make the required election under § 1361(d)(2). Therefore,

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2
Trust 1and Trust 2were not eligible S corporation shareholders and as a result, X’s S
corporation election terminated on Date 2.
X represents that X and X’s shareholders have filed tax returns consistent with X
being an S corporation. X further represents that the circumstances resulting in X’s S
corporation termination were inadvertent and were not motivated by tax avoidance or
retroactive tax planning. X and each person who was or is a shareholder of X at any
time since Date 2agree to make any adjustments (consistent with the treatment of X as
an S corporation) as may be required by the Secretary with respect to such period.
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)(B) provides that a “small business corporation” means a
domestic corporation that is not an ineligible corporation and that does not 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.
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 1 of subchapter J of Chapter 1) as owned by
an individual who is a citizen or resident of the United States may be a shareholder.
Section 1361(d)(1) provides that a QSST whose beneficiary makes an election
under § 1361(d)(2), will be treated as a trust described in § 1361(c)(2)(A)(i) and the
beneficiary of such trust shall be treated as the owner (for purposes of § 678(a)) of that
portion of the trust which consists of stock in an S corporation with respect to which the
election under § 1361(d)(2) is made.
Section 1361(d)(3) defines a QSST as a trust (A) the terms of which require that
(i) during the life of the current income beneficiary, there shall be only one income
beneficiary of the trust; (ii) any corpus distributed during the life of the current income
beneficiary may be distributed only to such beneficiary; (iii) the income interest of the
current income beneficiary in the trust shall terminate on the earlier of the beneficiary’s
death or the termination of the trust; and (iv) upon the termination of the trust during the
life of the current income beneficiary; the trust shall distribute all of its assets to that
beneficiary; and (B) all of the income (within the meaning of § 643(b)) of which is
distributed (or required to be distributed) currently to one individual who is a citizen or
resident of the United States.
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

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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.
Based solely on the information submitted and the representations made, we
conclude that X’s S corporation election terminated on Date 2, when stock in X was
transferred to Trust 1and Trust 2. We further conclude that the termination was
inadvertent within the meaning of § 1362(f). Accordingly, pursuant to the provisions of
§ 1362(f), X will be treated as an S corporation from Date 2and thereafter, provided that
X’s S corporation election was otherwise valid and has not otherwise terminated under
§ 1362(d). This ruling is conditioned upon the respective beneficiaries of Trust 1and
Trust 2filing QSST elections for Trust 1and Trust 2, with an effective date of Date 2
within 120 days of the date of this ruling. A copy of this letter should be attached to
each election.
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 isdirected 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 representative.
Sincerely,
Bradford R. Poston
Senior Counsel, Branch 2
(Passthroughs & Special Industries)
Enclosures (2)
Copy of this letter
Copy for § 6110 purposes
cc: