IRS written determination 201604010

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: 201604010
Release Date: 1/22/2016
Index Number: 1361.00-00, 1361.03-00
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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:BO1
PLR-116696-15
Date:
October 08, 2015
LEGEND
X=-------------------------
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A=--------------
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B=-----------------
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Trust 1=--------------------------------------------------------
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Trust 2=-------------------------------------------------------
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Trust 3=--------------------------------------
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Date 1=-------------------------
Date 2=----------------
Date 3=------------------
Date 4=---------------------
Date 5=--------------------------
a%=------

PLR-116696-15
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b%=----------
State=--------
Dear --------------:
This responds to a letter dated January 29, 2015, and subsequent information,
submitted on behalf of X by X’s authorized representative, requesting relief under
section 1362(f) of the Internal Revenue Code.
FACTS
According to the information submitted and representations made within, X was
incorporated and made an S election effective Date 1, under the laws of State.
During A’s life, A owned a% of the shares in X through Trust 1. Trust 1was a trust
described in §1361(c)(2)(A)(i) and was an eligible shareholder of X. A died on Date 2.
After A’s death, Trustcontinued to be an eligible shareholder of X under §
1361(c)(2)(A)(ii) until Date 3. As of Date 3, Trust 1was intended to be treated as a
qualified subchapter S trust (QSST) however, B, the beneficiary of Trust 1, did not file a
timely election to treat Trust 1as a QSST. Therefore, on Date 3, Trust 1became an
ineligible shareholder of X, causing X’s S corporation election to terminate on Date 3.
Trust 1transferred b% of its X shares to Trust2 on Date 4. As of Date 4, X represents
that Trust 2was intended to be treated as a QSST. However, B, the beneficiary of
Trust 2did not file a timely election to treat Trust 2as a QSST.
On Date 5, Trust 2distributed all of its shares in X to B. B then immediately transferred
the X shares to Trust 3. Trust 3is a trust described in §1361(c)(2)(A)(i) and is an
eligible shareholder of X.
X represents that the circumstances resulting in the failure to file the QSST elections for
Trust 1and Trust 2was inadvertent and was not motivated by tax avoidance or
retroactive tax planning. X and its shareholders have agreed to make such adjustments
(consistent with the treatment of X as an S corporation) as may be required by the
Secretary.
LAW AND ANALYSIS
Section 1361(a)(1) of the Code 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.

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Section 1361(b)(1) defines a “small business corporation” as 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 1
class of stock.
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) as owned by an individual who is a citizen or resident
of the United States may be a shareholder of an S corporation.
Section 1361(c)(2)(A)(iii) provides that a trust may be an S corporation shareholder with
respect to stock transferred to it pursuant to a will, but only for the 2-year period
beginning on the day on which such stock is transferred to it.
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) the trust is treated as a trust
described in § 1361(c)(2)(A)(i) and, for purposes of § 678(a), the beneficiary of the trust
is treated as the owner of that portion of the trust which consists of stock in a S
corporation with respect to which the election under § 1361(d)(2) is made.
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) 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; 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 the 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 the representations made, we conclude that
X’s S corporation election terminated on Date 3as a result of the failure to make a
timely QSST election for Trust 1. We further conclude that the termination of X’s S
election on Date 3was inadvertent within the meaning of § 1362(f). Pursuant to the
provisions of § 1362(f), X will be treated as continuing to be an S corporation as of Date
3 and thereafter, provided that B files a QSST election for Trust 1and Trust 2with an
effective date of Date 3and Date 4, respectively, with the appropriate service center
within 120 days from the date of this letter, and X’s S corporation election is not

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otherwise terminated under §1362(d). A copy of this letter must be attachedto the
QSST elections.
Except as specifically ruled upon above, we express or imply no opinion concerning the
federal tax consequences of the facts of this case under any other provision of the
Code. Specifically, we express or imply no opinion regarding X’s eligibility to be an S
corporation. Further, no opinion is expressed or implied concerning whether Trust 1
and Trust 2meet the requirements of a QSST under § 1361(d)(3).
This ruling is directed only to the taxpayer who requested it. According to§ 6110(k)(3),
this ruling may not be used or cited as precedent.
Pursuant to the power of attorney on file with this office, we are sending a copy of this
letter to your authorized representative.
Sincerely,
David R. Haglund
David R. Haglund
Branch Chief, Branch 1
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)
Enclosures (2)
Copy of this letter
Copy of this letter for section 6110 purposes
cc: