IRS written determination 201525004

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: 201525004
Release Date: 6/19/2015
Index Number: 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:PSI:B03
PLR-133962-14
Date January 6, 2015
LEGEND
X=---------------------
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H=-------------------------------
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W=----------------------------
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Trust A=----------------------------------------------------------------------
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Trusts=------------------------------------------------------------------------------------------
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D1=----------------------------
D2=---------------------------------
D3=---------------------------------
Dear -----------------:
This letter responds to a letter dated September 11, 2014, and subsequent
correspondence submitted on behalf ofX requesting rulings under § 1362(f) of the
Internal Revenue Code (Code).

PLR-133962-14
2
FACTS
The information submitted states that X is a corporation that made an election to
be treated as a subchapter S corporation effective D1. However, the trustee rather than
the grantors of the Trusts signed the Form 2553, Election by a Small Business
Corporation, to consent to X’s S corporation election. Therefore, the Trustswere not
permitted shareholders. Also, the Form 2553 contained certain clerical errors insofar as
the names of several shareholders who signed consents were misspelled and an
individual rather than his estate was listed as a shareholder.
In addition, shares of stock in X are held by Trust A. Trust Awas a grantor trust
described in § 1361(c)(2)(A)(i) of which H and W were the deemed owners. H died on
D2. Relative to H’s shares of X stock, Trust Aqualified under § 1361(c)(2)(A)(ii) as an
eligible shareholder for two years from H’s date of death. However, Trust Acontinued
to hold the X stock afterthe two-year period. According to X, Trust Aqualifies as an
electing small business trust (“ESBT”), but its trustee made no ESBT election.
X represents that the circumstances resulting in any termination or
ineffectiveness of its S corporation election were inadvertent and were not motivated by
tax avoidance or retroactive tax planning. X and its respective shareholders have
agreed to make such adjustments, consistent with the treatment of X as an S
corporation, as may be required by the Service.
LAW AND ANALYSIS
Section 1361(a) 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)(ii) provides that for purposes of § 1361(b)(1)(B), a trust
which was described in § 1361(c)(2)(A)(i) immediately before the death of the deemed
owner and which continues in existence after such death may be a shareholder, but
only for the 2-year period beginning on the day of the deemed owner’s death.
Section 1361(c)(2)(A)(v) provides that for purposes of § 1361(b)(1)(B), an ESBT
may be a shareholder.

PLR-133962-14
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Section 1361(e)(1)(A) provides that for purposes of § 1361, except as provided in
§ 1361(e)(1)(B), the term “electing small business trust” means any trust if (i) such trust
does not have as a beneficiary any person other than (I) an individual, (II) an estate, (III)
an organization described in § 170(c)(2), (3), (4), or (5), or (IV) an organization
described in § 170(c)(1) which holds a contingent interest in such trust and is not a
potential current beneficiary, (ii) no interest in such trust was acquired by purchase, and
(iii) an election under § 1361(e) applies to such trust. Section 1361(e)(3) provides that
an election under § 1361(e) shall be made by the trustee. Any such election shall apply
to the taxable year of the trust for which made and all subsequent taxable years of such
trust unless revoked with the consent of the Secretary.
Section 1362(a)(2) provides that an election under § 1362(a) shall be valid only if
all persons who are shareholders in the corporation on the day on which the election is
made consent to the election.
Section 1362(f) provides that if (1) an election under § 1362(a) 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), (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.
CONCLUSION
Based solely on the facts submitted and representations made, we conclude that
the S corporation election of X was ineffective for the taxable year beginning D1,
because of the failure of the grantors of the Truststo properly consent to X’s S
corporation election. We further conclude that the ineffectiveness of X’s S corporation
election constituted an inadvertent invalid election within the meaning of § 1362(f).
Accordingly, X will be treated as continuing to be an S corporation from D1 and
thereafter, provided that its S corporation election was otherwise valid and was not
otherwise terminated under § 1362(d), except as addressed below. We also conclude
that the clerical errors on Form 2553 did not cause the election of X to be invalid.

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As a condition to this ruling, proper consents signed by the grantors of the Trusts
must be filed with the appropriate service center, indicating that the consents must be
filed with the originally filed Form 2553 for X within 120 days of the date of this letter. A
copy of this letter should be attached to the consents.
We further conclude that X’s S corporation election would have terminated on D3
(after the two-year period beginning on H’s death) due to the trustee’s failure to make
an ESBT election for Trust Ahad the initial S election been valid. We also conclude
that such termination would have constituted an inadvertent termination within the
meaning of § 1362(f). Accordingly, X will be treated as continuing to be an S
corporation from D3, and thereafter, provided that its S corporation election was
otherwise valid and was not otherwise terminated under § 1362(d). Moreover, relative
to H’s shares of X stock, Trust Awill be treated as an ESBT from D3, and thereafter,
provided the trustee ofTrust Afiles an ESBT election for Trust Awith the appropriate
service center, effective D3, within 120 days of the date of this letter. A copy of this
letter should be attached to each election.
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 regarding whether
X is otherwise eligible to be treated as 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.
Pursuant to a power of attorney on file, we are sending a copy of this letter to X‘s
authorized representative.
The ruling contained in this letter is 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 ruling request, it is subject to verification on examination.
Sincerely,
/s/
Bradford R. Poston
Senior Counsel, Branch 3
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)
Enclosures (2)
Copy of this letter
Copy for § 6110 purposes