Election After Termination

Internal Revenue Service Department of the Treasury
Washington, DC 20224
Number: 202330009
Release Date: 7/28/2023
1362.00-00, 1362.01-02
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Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:01
PLR-122176-22
Date:
May 02, 2023
LEGEND
X = ---
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Y ---
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Date 1 = ---
Date 2 = ---
Date 3 = ---
Date 4 = ---
Date 5 = ---
Date 6 = ---
State = ---
A = ---
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Dear ---:
PLR-122176-22 2
This responds to a letter dated November 2, 2022, and subsequent correspondence, submitted on behalf of X by its authorized representative, requesting a ruling under § 1362(g) of the Internal Revenue Code (the Code).

# FACTS

X was formed in State on Date 1 and elected to be treated as an S corporation effective
Date 2. X’s S corporation election terminated effective Date 3. A, through his disregarded entity, Y, acquired all the interests in X in two stock acquisitions—one on Date 4 and the other on Date 5. As of the date of the termination of X’s S corporation election, A was not an owner. X now requests permission to be an S corporation, effective Date 6. Date 6 is prior to the expiration of the five-year waiting period imposed by § 1362(g).

# LAW

Section 1362(a) provides that except as provided in § 1362(g), a small business corporation may elect to be an S corporation.
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), the corporation (and any successor corporation) shall not be eligible to make an election under § 1362(a) for any taxable year before its fifth taxable year which begins after the first taxable year for which the termination is effective, unless the Secretary consents to the election.
Section 1.1362-5(a) of the Income Tax Regulations provides that absent the
Commissioner's consent, an S corporation whose election has terminated (or a successor corporation) may not make a new election under § 1362(a) for five taxable years as described in § 1362(g). However, the Commissioner may permit the corporation to make a new election before the 5-year period expires. The corporation has the burden of establishing that under the relevant facts and circumstances, the Commissioner should consent to a new election. The fact that more than 50 percent of the stock in the corporation is owned by persons who did not own any stock in the corporation on the date of the termination tends to establish that consent should be granted. In the absence of this fact, consent ordinarily is denied unless the corporation shows that the event causing termination was not reasonably within the control of the corporation or shareholders having a substantial interest in the corporation and was not part of a plan on the part of the corporation or of such shareholders to terminate the election.

# CONCLUSION

Based solely on the facts submitted and representations made, we conclude that
X has met its burden under § 1.1362-5(a). We grant permission for X to re-elect to be
PLR-122176-22 3 an S corporation effective Date 6. Accordingly, provided that X makes an election to be an S corporation by filing a completed Form 2553 with the appropriate service center effective Date 6 within 120 days following the date of this letter, then such election will be treated as timely made for X's taxable year beginning Date 6. A copy of this letter should be attached to the Form 2553.
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 regarding whether X is otherwise eligible to be an S corporation.
The ruling contained in this letter is based on 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.
Pursuant to a power of attorney on file with this office, a copy of this letter is being sent to your authorized representative.
Sincerely,
Caroline E. Hay
Caroline E. Hay
Senior Technician Reviewer, Branch 1
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)
Enclosure
Copy for § 6110 purposes cc: