IRS written determination 201605002

us-irs-private-letter-rulings-201605002IRS written determination 201605002Guidance

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: 201605002
Release Date: 1/29/2016
Index Number: 1362.04-00
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Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
---------------------------, ID No. ---------------
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Telephone Number:
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Refer Reply To:
CC:PSI:B03
PLR-113990-15
Date:
October 16, 2015
X= ------------------------------------------------------
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State= -------------------
Date 1= -----------------------
Date 2= -----------------------
Date 3= -----------------------
Date 4= ----------------------
Date 5= ------------------
Agreement 1= ----------------------------------------------------------------------------------------------
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Agreement 2= ----------------------------------------------------------------------------------------------
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M= -------
N= ------
Dear --------------------:
This responds to a letter dated April 16, 2015 and subsequent correspondence
submitted on behalf of X by its authorized representative requesting a ruling under
§ 1362(f) of the Internal Revenue Code (the Code).

PLR-113990-15
2
FACTS
X was organized on Date 1as a corporation under the laws of State.
On Date 2, X amended its articles of incorporation to provide that X could issue
M shares of stock in each of M classes. In general, there were no preferences,
distinctions, or special rights with respect to any one class of stock, except that the
articlesprovided that X and its shareholders could, by written agreement, specify the
manner in which the assets of X would be distributed in the event of a liquidation,
dissolution, or winding up of X. In conjunction with these amended articles of
incorporationand on the same date, X and its shareholders entered into binding
Agreement 1.
Agreement 1permitted potentially different rights of the shareholders to
liquidation proceeds. It provided that the net proceeds on liquidation would be
distributed in accordance with a plan of distribution approved by N% of the shareholders
or, if no plan was approved, the proceeds would be distributed in a way that could vary
by class and by the length of a shareholder’s employment with X.
Effective Date 3, X elected to be treated as an S corporation. The articles of
incorporation and the provisions of Agreement 1thus applied during the time X intended
to be an S corporation.
On Date 4, X amended its articles of incorporation to provide for only one class of
common stock of X. On Date 5, X and its shareholders amended Agreement 1by
entering into binding Agreement 2. Agreement 2does not provide for any differing
rights among the shareholders to proceeds from any liquidation of X.
To date, there has not been any distribution in liquidation proceeds to the
shareholders of X, and therefore, there have not been any different liquidating
distributions among the shareholders.
X represents that X and its shareholder intended for X to be an S corporation
effective Date 3 and X has filed all returns consistent with X’s status as an S corporation
since Date 3. X and its shareholders agree to make any adjustments required as a
condition of obtaining relief under the inadvertent termination rule as provided in §
1362(f) of the Code.
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 the year.

PLR-113990-15
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Section 1361(b)(1) defines a “small business corporation” as a domestic
corporation which is not an ineligible corporation which does not (A) have more than
100 shareholders, (B) have as a shareholder a person (other than an estate, and 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 one
class of stock.
Section 1362(d)(2)(A) provides than an election under § 1362(a) shall be
terminated whenever (at any time on or after the 1
st
day of the 1
st
taxable year for which
the corporation is an S corporation) such corporation ceases to be a small business
corporation. Section 1362(d)(2)(B) further provides that the termination shall be
effective on and after the date of cessation.
Section 1362(f) provides, in relevant part, 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.
Section 1.1361-1(l)(1) of the Income Tax Regulations provides, in part, that a
corporation is generally treated as having only one class of stock if all outstanding
shares of stock of the corporation confer identical rights to distribution and liquidation
proceeds.
Section 1.1361-1(l)(2)(i) provides that the determination of whether all
outstanding shares of stock confer identical rights to distribution and liquidation
proceeds is made based on the corporate charter, articles of incorporation, bylaws,
applicable state laws, and binding agreements relating to distribution and liquidation
proceeds (collectively, governing provisions).
CONCLUSION

PLR-113990-15
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Based on the facts submitted and the representations made, we conclude that
X’s S corporation election was ineffective because X had more than one class of stock.
However, we conclude that such ineffectiveness was inadvertent within the meaning of
§ 1362(f). Therefore, X will be treated as an S corporation effective Date 3and
thereafter, provided X’s S corporation election is not otherwise terminated under
§ 1362(d).
Except as specifically ruled upon above, we express or imply no opinion
concerning the federal tax consequences of the facts of this case under any other
provision of the Code. Specifically, we express or imply no opinion regarding X’s
eligibility to be an S corporation.
The rulings contained in this letter are based upon information and
representations submitted by the taxpayer and are accompanied by a perjury statement
executed by an appropriate party. While this office has not verified any of the material
submitted in support of this request, it is subject to verification on examination.
This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3)
of the Code provides that this ruling may not be used or citedas precedent.
Pursuant to a power of attorney on file with this office, we are sending copies of
this letter to your authorized representative.
Sincerely,
Holly Porter
Branch Chief, Branch 3
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)
Enclosures (2)
Copy of this letter
Copy for §6110 purposes

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