IRS written determination 201434018

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: 201434018
Release Date: 8/22/2014
Index Number: 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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ReferReply To:
CC:PSI:B03
PLR-147807-13
Date:
May 20, 2014
LEGEND
X=----------------------------------------------------------------------------------------------
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Y=----------------------------------------------------------------------------------------------
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A=----------------------------------------------------------------------------------------------
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State=-------------
Date 1=-----------------------
Date 2=---------------------
Date 3=---------------------
Date 4=------------------
Date 5=-----------------------
Dear ----------------:
This letter responds to a letter dated November 22, 2013, and subsequent
correspondence, written on behalf of X, requesting a ruling under § 1362(f) of the
InternalRevenue Code.

PLR-147807-13
2
FACTS
The information submitted states that X was incorporated under the laws of Stateon
Date 1. X elected to be an S corporation effective Date 2. X has been the sole
shareholder of Y stock at all times since Date 2. X elected to treat Y as a qualified
subchapter S subsidiary (QSub) effective Date 2.
On Date 3, X’s Articles of Incorporation were amended to authorize the issuance of
preferred stock to A in exchange for A’s contribution of money. The preferred stock had
preferential distribution and liquidation rights over the common stock. On Date 4, X’s
Articles of Incorporation were amended to authorize the issuance of perpetual preferred
stock to A in exchange for A’s contribution of money. The perpetual preferred stock had
preferential distribution and liquidation rights over the common stock.
X inadvertently terminated its S corporation election on Date 3by issuing a second
class of stock. On Date 5, X took corrective action by amending its Articles of
Incorporation to eliminate the preferred stock and perpetual preferred stock and create
non-voting common stock.
X represents that no distributions of cash or other property have ever been made by X
with respect to the preferred stock and perpetual preferred stock. X represents that the
termination was not motivated by tax avoidance or retroactive tax planning. X and its
shareholders agree to make any adjustments consistent with the treatment of X as an S
corporation, as might be required by the Secretary.
LAW AND ANALYSIS
Section 1362(f) provides that if (1) an election under § 1362(a) or § 1361(b)(3)(B)(ii) by
any corporation was terminated under § 1362(d)(2) or § 1361(b)(3)(C), (2) the Secretary
determines that the circumstances resulting in such termination were inadvertent, (3) no
later than a reasonable period of time after discovery of the circumstances resulting in
such termination, steps were taken so that the corporation for which the termination
occurred is a small business corporation or a QSub, as the case may be, and (4) the
corporation for which the termination occurred, and each person who was a shareholder
of such corporation at any time during the period specified pursuant to § 1362(f), agrees
to make such adjustments (consistent with the treatment of such corporation as an S
corporation or a QSub, as the case may be) as may be required by the Secretary with
respect to such period, then, notwithstanding the circumstances resulting in such
termination, such corporation shall be treated as an S corporation or a QSub, as the
case may be, during the period specified by the Secretary.

PLR-147807-13
3
CONCLUSION
Based solely on the facts submitted and representations made, we conclude that X’s S
corporation election and Y’s QSub election terminated on Date 3. We also conclude
that the termination of X’s S corporation election and Y’s QSub election was inadvertent
within the meaning of § 1362(f). Therefore, we conclude that X will be treated as an S
corporation from Date 3and thereafter, provided X’s S corporation election is otherwise
valid and is not otherwise terminated under § 1362(d). In addition, Y will be treated as a
QSub of X from Date 3and thereafter, provided that Y is otherwise eligible to be treated
as a QSub.
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, weexpress or imply no opinion regarding whether X is otherwise
eligible to be an S corporation, or whether Y is otherwise eligible to be a QSub.
This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) 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,
Stacy L. Short
Senior Technician Reviewer, Branch 3
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)
Enclosures (2):
Copy of this letter
Copy for § 6110 purposes
cc: