IRS written determination 201423013

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: 201423013
Release Date: 6/6/2014
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:B02
PLR-138935-13
Date: November 14, 2013
X = -------------------------------
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State=------------
D1=---------------------
D2=------
D3=---------------------
Trust A=---------------------------------------
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Trust B= --------------------------------------
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Trust C= -----------------------------------
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Dear ----------------:
This responds to a letter dated September 5, 2013, submitted on behalf of X by
its authorized representative, requesting a ruling under § 1362(f) of the Internal
Revenue Code.
The information submitted states that X was incorporated under the laws of State
and elected to be an S corporation effective on D1. In D2, shares of X were transferred
to Trust A, to Trust Band to Trust C(collectively, the “Three Trusts”). Each of the Three
Trusts was treated as a wholly-owned grantor trust under §§ 671 and 676. On D3, the
grantor of the Three Trusts ceased to be treated as the owner of the Three Trusts for
income tax purposes.
X represents that the Three Trusts were eligible to elect qualified subchapter S
trust (QSST) treatment under § 1361(d). However, the respective beneficiaries of the
Three Trusts each inadvertently failed to timely make a QSST election. Therefore, X's
S election terminated on D3.

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X represents that X and each of its shareholders have filed consistently with the
treatment of X as an S corporation since D1. X represents that the termination was not
motivated by tax avoidance or retroactive tax planning. X and its shareholders have
agreed to make any adjustments that the Commissioner may require, consistent with
the treatment of X as an S corporation.
Section 1361(a)(1) of the Code 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 the term “small business corporation” means
a domestic corporation which is not an ineligible corporation and which 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 I of subchapter J of chapter 1) as owned by
an individual who is a citizen or resident of the United States may be an S corporation
shareholder.
Section 1361(d)(1) provides that in the case of a QSST for which a beneficiary
makes an election under § 1361(d)(2), the trust is treated as a trust described in
§ 1361(c)(2)(A)(i), and for purposes of § 678(a), the beneficiary of the trust shall be
treated as the owner of that portion of the trust that consists of stock in an S corporation
with respect to which the election under § 1361(d)(2) is made.
Section 1361(d)(2)(A) provides that a beneficiary of a QSST may elect to have
§ 1361(d) apply. Section 1.1361-1(j)(6)(ii) provides that the current income beneficiary
of a QSST must make the election under § 1361(d)(2) by signing and filing with the
service center with which the corporation files its income tax returns the applicable form
or a statement including the information listed in § 1.1361-1(j)(6)(ii).
Section 1362(d)(2) provides that (A) in general, an election under § 1362(a) shall
be terminated whenever (at any time on or after the first day of the first taxable year for
which the corporation is an S corporation) such corporation ceases to be a small
business corporation, and (B) any termination under § 1362(d)(2) shall be effective on
and after the date of cessation.
Section 1362(f) provides, in 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

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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.
Based solely on the facts submitted and the representations made, we conclude
that X's S corporation election terminated on D3, because of the inadvertent failure of
the beneficiaries of the Three Trusts to make QSST elections, and that this termination
of X's S election was an inadvertent termination within the meaning of § 1362(f).
Accordingly, pursuant to the provisions of § 1362(f), X will be treated as continuing to be
an S corporation from D3 and thereafter, provided X's S corporation election was valid
and not otherwise terminated under § 1362(d).
This ruling is contingent upon the respective beneficiaries of each of the Three
Trusts filing QSST elections, with an effective date of D3, with the appropriate service
center within 120 days of the date of this ruling. A copy of this letter should be attached
to the QSST election. If X or its shareholders fail to treat X as described above, this
letter ruling will be null and void.
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, including whether X is a small business corporation under § 1361(b), or whether
Trustis a QSST within the meaning of § 1361(d)(3).

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This ruling is directed only to the taxpayer that requested it. Section 6110(k)(3)
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 X’s authorized representative.
Sincerely,
Bradford R. Poston
Senior Counsel, Branch 2
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)
Enclosures:2
Copy of this letter
Copy for § 6110 purposes