IRS written determination 201530016

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: 201530016
Release Date: 7/24/2015
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 ReplyTo:
CC:PSI:B03
PLR-143030-14
Date:
February 12, 2015
LEGEND
X=------------------------------------------------------------------------------------------
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Y=------------------------------------------------------------------------------------------
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State1=-------------
State2=------------
D1=------------------
D2=------------------------
D3=--------------------------
D4=---------------------
Dear ------------:
This letter responds to a letter dated November 19, 2014, and subsequent
correspondence, submitted on behalf of X by its authorized representative requesting a
ruling under § 1362(f) of the Internal Revenue Code (Code).

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2
FACTS
The information submitted states that X is a successor corporation to Y, which
was organized under the laws of State1on D1 and elected to be an S corporation
effective D2. X was organized under the laws of State2on D3 and elected to be an S
corporation effective D4. Between D3 and D4, Y had an ineligible shareholder and its S
corporation election terminated. As a result, X’s election on D4 to be an S corporation
was invalid.
X and Y represent that the termination was not motivated by tax avoidance or
retroactive tax planning. X further represents that X and its shareholders have filed
consistently with the treatment of X as an S corporation since D4. 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.
LAW AND ANALYSIS
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 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) provides that the term “small business corporation” means a
domestic corporation which is not an ineligible corporation and which does not (A) have
more than 100 shareholders, (B) 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, (C) have a nonresident alien as a shareholder, and (D) have more
than one class of stock.
Section 1362(d)(2)(A) provides that an election under §1362(a) will 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.
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 (A)so that the corporation is a small business

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corporation, 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 termination, the corporation will be
treated as an S corporation during the period specified by the Secretary.
Section 1.1362-4(b) provides, in relevant part, that for purposes of §1.1362-4(a),
the determination of whether a termination was inadvertent is made by the
Commissioner. The corporation has the burden of establishing that under the relevant
facts and circumstances the Commissioner should determine that the termination was
inadvertent. The fact that the terminating event was not reasonably within the control of
the corporation or was not part of a plan to terminate the election, or the fact that the
terminating event or circumstance took place without the knowledge of the corporation,
notwithstanding its due diligence to safeguard itself against such an event or
circumstance, tends to establish that the termination was inadvertent.
Section 1.1362-4(d) 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.
Section 1362(g) provides that, if a small business corporation has made an
election under § 1362(a) and if such election has been terminated under § 1362(d),
such corporation (and any successor corporation) shall not be eligible to make an
election under subsection (a) for any taxable year before its 5th taxable year which
begins after the 1st taxable year for which such termination is effective, unless the
Secretary consents to such election.
CONCLUSION
Based solely on the facts submitted and the representations made, we conclude
that Y’s S corporation election terminated on D3, and therefore X’s S corporation
election on D4 was invalid. We also conclude that the circumstances resulting in the
termination were inadvertent within the meaning of §1362(f). Accordingly, under
§ 1362(f), Y will be treated as an S corporation from D3 to D4, and X will be treated as
an S corporation from D4 and thereafter, provided X’s S corporation election was
otherwise valid and has not otherwise terminated under §1362(d).
Except as specifically ruled above, we express no opinion concerning the federal
tax consequences of the facts described above under any other provisions of the Code.
Specifically, we express no opinion regarding X’s eligibility to be an S corporation.

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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.
In accordance with a power of attorney on file with thisoffice, we are sending
copies of this letter to X’s authorized representatives.
Sincerely,
Bradford R. Poston
Senior Counsel, Branch 3
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)
Enclosures (2):
Copy of this letter
Copy for §6110 purposes
cc: