IRS written determination 201426011

us-irs-private-letter-rulings-201426011IRS written determination 201426011Guidance

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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: 201426011
Release Date: 6/27/2014
Index Numbers: 1362.00-00, 1362.04-00
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Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
----------------------, ID No. ----------------
Telephone Number:
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Refer Reply To:
CC:PSI:B03
PLR-139654-13
Date:
February 3, 2014
LEGEND
Company=-----------------------------------------------------------------------------------------------------------------------
Y=------------------------------------
A=-----------------------------------------------------------------------------------------------------------------------
------------------------
State=--------
Date 1=-------------------------
Date 2=---------------------------
Date 3=------------------
Dear --------------:
This letter responds to a letter dated August 21, 2013, and subsequent
correspondence, submitted on behalf of Companyby Company’s authorized
representative, requesting a ruling under §1362(f) of the Internal Revenue Code.
FACTS
Companyincorporated in State on Date 1, and elected to be an S corporation
effective Date 1. Before Date 2, eligible S corporation shareholders owned all of the
stock of Company. On Date 2, however, Y, a partnership which is an ineligible S
corporation shareholder under § 1361(b)(1)(B), acquired shares of Company. Upon
discovery of this error, Y transferred all of its Companyshares to A on Date 3. A is an

PLR-139654-13
2
eligible S corporation shareholder and has been a shareholder of Companysince
before Date 2.
Companyrepresents that the circumstances resulting in the termination of
Company’s S corporation election were not motivated by tax avoidance or retroactive
tax planning. Companyand its shareholders have agreed to make any adjustments
consistent with the treatment of Companyas anS corporation as may be required by
the Secretary with respect to the period specified by §1362(f).
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 such year.
Section 1361(b)(1)(B) provides that, for purposes of subchapter S, the term
“small business corporation” means a domestic corporation which is not an ineligible
corporation and which does not haveas 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 1362(d)(2)(A) provides that 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(f) provides, in relevant part, 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 the termination were inadvertent; (3) no
later than a reasonable period of time after discovery of the circumstances resulting in
the termination, steps were taken so that the corporation for which the termination
occurred is a small business corporation; and (4) the corporation for which the
termination occurred, and each person who was a shareholder in 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 the period, then, notwithstanding the
circumstances resulting in the termination, the corporation will be treated as an S
corporation during the period specified by the Secretary.
Section 1.1362-4(d) of the Income Tax Regulations provides, in part, that the
Commissioner may require any adjustments that are appropriate. In general, the
adjustments should be consistent with the treatment of the corporation as an S
corporation during the period specified by the Commissioner.

PLR-139654-13
3
CONCLUSION
Based solely on the facts submitted and representations made, we conclude that
Company’s S corporation election terminated on Date 2, when Companystock was
transferred to Y, an ineligible shareholder. We further conclude that the termination was
inadvertent within the meaning of §1362(f). Pursuant to the provisions of § 1362(f),
Companywill be treated as continuing to be an S corporation on and after Date 2,
unless Company’s S corporation election is otherwise terminated under §1362(d).
Except as expressly provided herein, we express or imply no opinion concerning
the tax consequences of any aspect of any transaction or item discussed or referenced
in this letter. Specifically, we express or imply no opinion regarding Company’s
eligibility to be treated as an S corporation.
This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of
the Code provides that it may not be used or cited as precedent.
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,
James A. Quinn
Senior Counsel, Branch 3
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)
Enclosures (2):
Copy of this letter
Copy for § 6110 purposes
cc:

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