IRS written determination 201516029

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: 201516029
Release Date: 4/17/2015
Index Number: 1362.00-00, 1362.04-00
-------------------------
---------------------------------------------------
-----------------------
------------------------------
Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
------------------------, ID No. ----------------
Telephone Number:
--------------------
Refer Reply To:
CC:PSI:B3
PLR-126652-14
Date:
December 18, 2014
LEGEND
Company = -----------------------------------
----------------------
Trust 1=------------------------------------------------------------------------------------------
------------------------------------------------
Trust 2=------------------------------------------------------------------------------------------
-------------------------------------------------
A = ----------------------------
B = -------------------------------------------------------------
State=-------------
Date 1=---------------------
Date 2=-----------------------
m = -----
Dear --------------:
This letter responds to a letter dated June 25, 2014, submitted on behalf of
Company, requesting a ruling under §1362(f) of the Internal Revenue Code.
FACTS

PLR-126652-14
2
According to the information submitted, Companywas incorporated under the
laws of Stateon Date 1, and elected to be an S corporation effective Date 1. On Date 2,
mshares of Company stock were transferred to Trust 1, and mshares of Company
stock were transferred to Trust 2. Companyrepresents that since Date 2, Trust 1and
Trust 2have met the definition of a “qualified subchapter S trust” (QSST) under
§ 1361(d)(3). However, the sole income beneficiary of Trust 1, A, and the sole income
beneficiary of Trust 2, B, did not make a timely QSST election under §1361(d)(2).
Therefore, Trust 1and Trust 2were not permissible shareholders on Date 2and
thereafter. As a result, Company’sS corporation election terminated on Date 2.
Companyrepresents that there was no intent to terminate Company’sS
corporation election and that the termination as inadvertent and not motivated by tax
avoidance or retroactive tax planning. Companyand its shareholders have treated
Companyas an S corporation since Date 2. In addition, Companyand its shareholders
agree to make any adjustments consistent with the treatment of Companyas an S
corporation as may be required by the Secretary.
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 corporationwhich 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 the purposes of §1362(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 with respect to which a
beneficiary makes an election under §1361(d)(2), (A) such trust will be treated as a
trust described in §1361(c)(2)(A)(i), and (B) for purposes of §678(a), the beneficiary of
such trust shall be treated as the owner of that portion of the trust which 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 (or his legal
representative) may elect to have §1361(d) apply.

PLR-126652-14
3
Section 1.1361-1(j)(6)(ii) of the Income Tax Regulations provides that the current
income beneficiary of the trust must make the election under §1361(d)(2) by signing
and filing with the service center with which thecorporation files its income tax return
the applicable form or statement including the information listed in §1361-1(j)(6)(ii).
Section 1362(a) provides that, except as provided in §1362(g), a small business
corporation may elect, in accordance with the provisions of §1362, to be an S
corporation.
Section 1362(d)(2)(A) provides that an election under §1362(a) shall be
terminated whenever (at any time on or after the 1st day of the 1st taxable year for
which the corporation is an S corporation) such corporation ceases to be a small
business corporation.
Section 1362(f) provides that if (1) an election under §1362(a) by any
corporation was terminated under §1362(d)(2) or (3), or (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, 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’sS corporation election terminated on Date 2because A and B failed to make
a QSST election under §1361(d)(2) for Trust 1and Trust 2respectively. We also
conclude that the termination of Company’sS corporation election was inadvertent
within the meaning of §1362(f).
Accordingly, under §1362(f), Companywill be treated as continuing to be an S
corporation from Date 2and thereafter, provided that Company’sS corporation election
was valid and was not otherwise terminated under §1362(d), and provided that A and B
file an election under §1361(d)(2)(A) for Trust 1and Trust 2with an effective date of
Date 2with the appropriate service center within 120 days from the date of this letter. A
copy of this letter should be attached to the election under §1361(d)(2)(A).
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

PLR-126652-14
4
in this letter. Specifically, we express or imply no opinion as to whether Trust 1and
Trust 2are otherwise eligible to be QSSTs or whether Companyis otherwise eligible to
be an S corporation for federal tax purposes.
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 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,
Richard T. Probst
Senior Technician Reviewer, Branch 3
Office of Associate Chief Counsel
(Passthroughs & Special Industries)
Enclosures (2)
Copy of this letter
Copy for § 6110 purposes
cc: