IRS written determination 201550022

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: 201550022
Release Date: 12/11/2015
Index Number: 1362.01-02, 1362.01-03
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Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
------------------------, ID No. ----------------
Telephone Number:
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ReferReply To:
CC:PSI:B3
PLR-110064-15
Date:
July 30, 2015
LEGEND
X=---------------------------------------------------------------------------------------
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Y=-----------------------
Z=------------------------------
A=-------------------
B=--------------------
C=----------------------
D=------------------
E=------------------
State=-------------
Date 1=------------------
Date 2=---------------------
Date 3=--------------------------
Date 4=-----------------------
Date 5=---------------------
s=---

PLR-110064-15
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t = ---
Dear ---------------:
This letter responds to a letter dated February 18, 2015, and subsequent
correspondence, submitted on behalf of X by X’s representative, requesting a ruling
under § 1362(g) and § 1362(b)(5) of the Internal Revenue Code (Code).
FACTS
According to the information submitted, X was incorporated in State on Date 1and
elected S corporation status effective Date 2. Until Date 3, A owned s% of X; B owned
t% of X; and C owned t% of X. On Date 3, B and C sold all their X shares to Y, a
foreign corporation, and thus an ineligible shareholder. There was no shareholder
agreement authorizing A to prevent the sale. Due to circumstances beyond A's and X’s
control, the sale of X stock to ineligible shareholder Y terminated X's S corporation
election on Date 3.
On Date 4, Y sold all of its X shares to Z, a domestic partnership. Prior to Date 5, Z
distributed all of its X shares pro rata to its partners D and E. After the distribution, A, D
and E owned all of the X shares. A, D and E are U.S. resident individuals and,
therefore, eligible shareholders of an S corporation. X is requesting permission to
reelect to be an S corporation effective Date 5, prior to the termination of the five-year
waiting period imposed by 1362(g).
LAW
Section 1362(a) provides that except as provided in 1362(g), a small business
corporation may elect to be an S corporation.
Section 1362(d)(2)(A) provides that an election under section 1362(a) shall be
terminated whenever (at any time on or after the 1st day of the 1st taxable year for
which the corporation is an S corporation) such corporation ceases to be a small
business corporation.
Section 1362(g) provides that if a small business corporation has made an election
under 1362(a) and if such election has been terminated under 1362(d), the corporation
(and any successor corporation) shall not beeligible to make an election under 1362(a)
for any taxable year before its fifth taxable year which begins after the first taxable year
for which the termination is effective, unless the Secretary consents to the election.
Section 1.1362-5(a) of the Income Tax Regulations provides, in part, that the
corporation has the burden of establishing that under the relevant facts and

PLR-110064-15
3
circumstances, the Commissioner should consent to a new election. The fact that more
than 50 percent of the stock in the corporationis owned by persons who did not own
any stock in the corporation on the date of the termination tends to establish that
consent should be granted. In the absence of this fact, consent ordinarily is denied
unless the corporation shows that the event causing termination was not reasonably
within the control of the corporation or shareholders having a substantial interest in the
corporation and was not part of a plan on the part of thecorporation or of such
shareholders to terminate the election.
Section 1362(b)(5) of the Code provides that if -- (A) an election under 1362(a) is made
for any taxable year after the date prescribed by 1362(b) for making such election for
such taxable year or no such election is made for any taxable year, and (B) the
Secretary determines that there was reasonable cause for the failure to timely make
such election, the Secretary may treat such an election as timely made for such taxable
year.
CONCLUSION
Based solely on the facts and the representations submitted, we conclude that the
events causing the termination of X’s S corporation election were not reasonably within
the control of the corporation or shareholders having a substantial interest in the
corporation, and were not part of a plan on the part of the corporation or of such
shareholders to terminate the election. Therefore, consent is granted for X to make an
election to be an S corporation effective Date 5.
In addition X has established reasonable cause for failing to make a timely election to
be an S corporation effective Date 5. Accordingly, provided that X makes an election to
be an S corporation by filing a completed Form 2553 with the appropriate service
center effective Date 5, within 120 days following the date of this letter, then such
election will be treated as timely made for X’s taxable year beginning Date 5. A copy of
this letter should be attached to the Form 2553.
Except as specifically set forth above, no opinion is expressed concerning the federal
tax consequences of the facts described above under any other provision of the Code.
In particular, no opinion is expressed or implied regarding X’s eligibility to elect to be an
S corporation.
A copy of this letter should be attached to X’s federal income tax return for its taxable
year for which the S corporation election is accepted as timely filed. A copy of this letter
is being sent to X for that purpose.
This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) of the
Code provides that it may not be used or cited as precedent.

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In accordance with a power of attorney on file with this office, we are sending a copy of
this letter to your 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,
Bradford Poston
Senior Counsel, Branch 3
Office of Associate Chief Counsel
(Passthroughs & Special Industries)
Enclosures (2)
Copy of this letter
Copy for § 6110 purposes
cc: