IRS written determination 201542001

us-irs-private-letter-rulings-201542001IRS written determination 201542001Guidance

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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: 201542001
Release Date: 10/16/2015
Index Number: 1362.04-00
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Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
-------------------------, ID No. -----------------
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Telephone Number:
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Refer Reply To:
CC:PSI:B3
PLR-100319-15
Date:
July 06, 2015
LEGEND
X = ----------------------------------------------
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Y=------------------
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Z=------------------------------------------------
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Trust 1=--------------------------------
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Trust 2=---------------------------------
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A = -------------------
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State=---------
Date 1=--------------------------
Date 2=--------------------
Date 3= -------------------
Date 4= ----------------------------

PLR-100319-15
2
Dear -------------:
This letter responds to a letter dated December 19, 2014, and subsequent
correspondence, submitted on behalf of X, requesting a ruling under §1362(f) of the
Internal Revenue Code (Code).
FACTS
The information submitted states that X was incorporated inStateon Date 1and
elected to be treated as an S corporation effective Date 1. On Date 2, A, the sole
shareholder of X, contributed shares of X to Y, an S corporation, and Z, a partnership,
ineligible S corporation shareholders under § 1361(b)(1)(B). As a result, X’s S
corporation election terminated on Date 2.
In Date 3, X learned that its S corporation election terminated on Date 2. After
learning that X’s S corporation election was terminated, X took corrective actions so that
by Date 4, all of X’s shareholders were eligible S corporation shareholders under
§ 1361(b)(1)(B). As part of the corrective actions, ineligible S corporation shareholders,
Y, Trust 1and Trust 2, momentarily held shares of X.
X represents that the termination of X’s S corporation election was not motivated
by tax avoidance or retroactive tax planning. X and its shareholders have agreed to
make any adjustments consistent with the treatment of X as an S corporation as may be
required by the Commissioner with 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) provides, in part, that 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)(i) provides that, for purposes of § 1361(b)(1)(B), a trust all
of which is treated (under subpart E of part 1 of subchapter J of chapter 1 of the Code)
as owned by an individual who is a citizen or resident of the United States may be a
shareholder.

Section 1362(d)(2)(A) provides that an election under § 1362(a)shall be
terminated whenever (at any time on or after the first day of the first taxable year for

PLR-100319-15
3
which the corporation is an S corporation) such corporation ceases to be a small
business corporation.
Section 1362(f) provides, in part, that if (1) an election under § 1362(a) by any
corporation (A) was not effective forthe taxable year for which made (determined
without regard to § 1362(b)(2)) by reason of a failure to meet the requirements of
§ 1361(b) or to obtain shareholder consents or (B) was terminated under § 1362(d)(2)
or (3), (2) the Secretary determines that the circumstances resulting in the
ineffectiveness or termination were inadvertent, (3) no later than a reasonable period of
time after discovery of the circumstances resulting in the ineffectiveness or termination,
steps were taken (A) so that the corporation is a small business corporation or (B) to
acquire the required shareholder consents, 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
ineffectiveness or termination, the corporation will 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
X's S corporation election terminated on Date 2because X had ineligible shareholders.
However, we conclude that the termination on Date 2, and the ineligible shareholders’
momentary ownership of shares in X as part of X’s corrective action were inadvertent
within the meaning of § 1362(f). Accordingly, under § 1362(f), X will be treated as
continuing to be an S corporation on and after Date 2, provided that X's S corporation
election was valid and not otherwise terminated under § 1362(d).
Except as specifically ruled above, we express or imply no opinion concerning
the federal tax consequences of the facts of this case under any other provisions of the
Code. Specifically, we express or imply no opinion as to whether X is otherwise eligible
to be treated as an S corporation.
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.
This ruling is directed only to the taxpayer that requested it. Section 6110(k)(3)
of the Code provides that it may not be used or cited as precedent.

PLR-100319-15
4
In accordance with a power of attorney on file withthis office, we are sending a
copy of this letter to your authorized representative.
Sincerely,
Mary Beth Carchia
Senior Technician Reviewer, Branch 3
Office of Associate Chief Counsel
(Passthroughs & Special Industries)
Enclosures (2)
Copy of this letter
Copy for § 6110 purposes
cc:

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