Inadvertent Terminations

Internal Revenue Service Department of the Treasury
Washington, DC 20224
Number: 202209010
Release Date: 3/4/2022
Index Number: 1362.04-00
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Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
---, I.D. No. ---
Telephone Number:
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Refer Reply To:
CC:PSI:B01
PLR-114045-21
Date:
December 03, 2021
LEGEND:
X = ---
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A = ---
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State = ---
Date 1 = ---
Date 2 = ---
Year = ---
Dear---
This responds to a letter dated May 6, 2021, and subsequent correspondence, submitted on behalf of X, requesting relief under § 1362(f) of the Internal Revenue Code (the Code).

# FACTS

The information submitted states that X was organized as a limited liability company under the laws of State on Date 1. X elected to be an S corporation effective Date 2. In Year, X learned that A, the sole shareholder of X, failed to sign a statement consenting to X's S corporation election as specified on the Form 2553, Election by a Small Business Corporation. Consequently, X's S corporation election was ineffective.
PLR-114045-21 2
X represents that the circumstances surrounding X’s ineffective S corporation election were inadvertent and unintended. X further represents that X and its shareholder have filed all returns consistent with X having a valid S corporation election in effect as of Date 2. X and its shareholder have agreed to make any adjustments that the Commissioner may require, consistent with treatment of X as an S corporation.

# 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) defines a “small business corporation” as a domestic corporation that is not an ineligible corporation and that 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(a)(2) provides that an election to be an S corporation shall be valid only if all persons who are shareholders in such corporation on the day on which such election is made consent to such election.
Section 1.1362-6(a)(2)(i) of the Income Tax Regulations provides that the election to be an S corporation is not valid unless all shareholders of the corporation at the time of the election consent to the election in the manner provided in § 1.1362-6(b).
Section 1362(f) provides that if (1) an election under § 1362(a) or § 1361(b)(3)(B)(ii) by any corporation (i) was not effective for the 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 (ii) was terminated under § 1362(d)

(2) or (3) or § 1361(b)(3)(C); (2) the Secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent; (3) no later than a reasonable period of time after discovery of the circumstances resulting in such ineffectiveness or termination, steps were taken so that the corporation for which the election was made or the termination occurred is a small business corporation; and (4) the corporation for which the election was made or the termination occurred, and each person who was a shareholder of the corporation at any time during the period specified pursuant to § 1362(f), agree to make the adjustments (consistent with the treatment of the corporation as an S corporation) as may be required by the Secretary with respect to this period, then, notwithstanding the circumstances resulting in such ineffectiveness or termination, the corporation shall be treated as an S corporation during the period specified by the Secretary.

# CONCLUSION

PLR-114045-21 3
Based solely on the facts submitted and representations made, we conclude that X's
S corporation election was ineffective on Date 2 because its shareholder failed to consent to X’s S corporation election. We conclude, however, that the ineffectiveness described in this paragraph was inadvertent within the meaning of § 1362(f). Therefore, X will be treated as an S corporation effective Date 2 and thereafter, provided that its S corporation election was otherwise valid and has not terminated under § 1362(d).
As a condition to this ruling, X must submit a fully completed Form 2553 effective Date 2 along with a copy of this letter to the appropriate service center within 120 days from the date of this letter.
Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. Specifically, no opinion is expressed or implied concerning the eligibility of X to be an S corporation.
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.
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.
Pursuant to the power of attorney on file with this office, we are sending a copy of this letter to X's authorized representative.
Sincerely,
/s/ Laura C. Fields
Laura C. Fields
Chief, Branch 1
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)
Enclosure
Copy for § 6110 purpose cc: