IRS written determination 201438015

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: 201438015
Release Date: 9/19/2014
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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Refer Reply To:
CC:PSI:B03
PLR-148306-13
Date:
April 23, 2014
LEGEND
Company=--------------------------------------------------------------------------------------------
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Trust=--------------------------------------------------------------------------------------------
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State=-------------------
Date 1=---------------------
Date 2=---------------------
Date 3=---------------------
Dear -----------------:
This letter responds to a letter dated November 25, 2013, submitted on behalf of
Companyby Company’s authorized representative, requesting a ruling under §1362(f)
of the Internal Revenue Code.
FACTS
Companyincorporated in Stateon Date 1, and elected to be an S corporation
effective Date 2. Shares of Companystock were transferred to Truston Date 3.
Companyrepresents that Trustwas eligible to be an electing small business trust
(ESBT) within the meaning of §1361(e) and has been treated as though a timely ESBT
election had been made. However, an election was mistakenly filed under §1361(d)(2)

PLR-148306-13
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for Trustto be treated as a qualified subchapter S trust (“QSST”) effective Date 3, even
though Trustdid not qualify as a QSST and was, in fact, treated as an ESBT. The
trustee of Trustmade no election under §1361(e)(3) to treat Trustas an ESBT.
Therefore, Trustwas not an eligible shareholder and, as a result, Company’s S
corporation election terminated.
Companyrepresents that the circumstances resulting in the termination of
Company’s S corporation election were inadvertent and were not motivated by tax
avoidance or retroactive tax planning. Additionally, Companyrepresents that Company
and its shareholders have filed their federal income tax returns consistent with having a
valid S corporation election in effect for Company. Companyand its shareholders have
agreed to make any adjustments consistent with the treatment of Companyas an S
corporation as may be required by the Secretarywith respect to the period specified by
§ 1362(f).
LAW
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 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)(v) provides that for the purposes of §1362(b)(1)(B), an
ESBT may be a shareholder.
Section 1361(e)(1)(A) provides that for purposes of§ 1361, except as provided in
§ 1361(e)(1)(B), the term “electing small business trust” means any trust if (i) such trust
does not have as a beneficiary any person other than (I) an individual, (II) an estate,
(III) an organization described in §170(c)(2), (3), (4), or (5), or (IV) an organization
described in §170(c)(1) which holds a contingent interest in such trust and is not a
potential current beneficiary, (ii) no interest in such trust was acquired by purchase, and
(iii) an election under §1361(e)applies to such trust.
Section 1361(e)(3) provides that an election under §1361(e) shall be made by
the trustee. Any such election shall apply to the taxable year of the trust for which made
and all subsequent taxable years of such trust unless revoked with the consent of the
Secretary.

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Section 1.1361-1(m)(2)(i) of the Income Tax Regulations provides, in part, that
the trustee of the trust must make the ESBT election by signing and filing, with the
service center where the S corporation files its income tax return, a statement that
meets the requirements of §1.1361-1(m)(2)(ii). Section 1.1361-1(m)(2)(iii) provides that
the ESBT election must be filed within the same time requirements prescribed in
§ 1.1361-1(j)(6)(iii) for filing a QSST election (nolater than 15 days and two months
after the desired effective date).
Section 1362(d)(2) 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 pertinent 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 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 isa small business corporation, and (4) the corporation for which the
termination occurred, and each person who was a shareholder in 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) 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 during the period specified by the Secretary.
CONCLUSION
Based solely on the facts submitted and representations made, we conclude that
Company’s S corporation election terminated because the trustee of Trustfailed to
timely file the required ESBT election under § 1361(e)(3). 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 3provided Company’s S corporation election was not otherwise terminated under
§ 1362(d) and provided that the trustee of Trust files an ESBT election with the
appropriate service center within 120 days of this letter to be effective Date 3. A copy of
this letter should be attached to the ESBT election.
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 whether Company
is otherwise eligible to be treated as an S corporation or whether Trust is eligible to be
treated as an ESBT.

PLR-148306-13
4
This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3)
provides that it may not be used or cited asprecedent.
In accordance with a power of attorney on file with this office, we are sending
copies of this letter to your authorized representatives.
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,
/s/
Holly Porter
Chief, Branch 3
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)
Enclosures (2)
Copy of this letter
Copy for §6110 purposes
cc: