PLR 1041028: The IRS approved revocation of an ESBT election and a late QSST election

Plain-English summary

The IRS allowed a trust to revoke its election to be treated as an electing small business trust, or ESBT. It also granted the trust 120 additional days to file a qualified Subchapter S trust, or QSST, election effective on the same date. The ruling found that the requirements for relief under the section 301.9100-3 regulations were satisfied. The approval is limited to the specific taxpayer and facts described in the letter.

Ruling snapshot

• Question: May the trust revoke its ESBT election and file a QSST election late?
• Outcome: Approved
• Key authorities: IRC § 1361; Treas. Reg. §§ 1.1361-1 and 301.9100-1 through 301.9100-3; IRC § 6110(k)(3)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201041028 Third Party Communication: None
Release Date: 10/15/2010 Date of Communication: Not Applicable
Index Number: 1362.01-03, 9100.22-00
Person To Contact:
----------------------------------------- -------------------, ID No. -------------
------------------------------------------------------------ Telephone Number:
------------------------------------------------------------ ---------------------
-------------------- Refer Reply To:
------------------------ CC:PSI:02
-------------------------------------- PLR-107302-10
Date:
June 16, 2010

Trust = -------------------------------------------------------------------
------------------------------------------------------------------

X = ----------------------
-----------------------
Date 1 = ----------------------
Date 2 = ------------------
Year 1 = -------
Year 2 = -------

Dear ------------:

   This letter responds to your letter dated February 1, 2010, and subsequent

correspondence, submitted on behalf of Trust, requesting a ruling under § 1361 of the
Internal Revenue Code that the Service consent to revoke Trust's electing small
business trust (ESBT) election as well as a ruling under to § 301.9100-3 of the
Procedure and Administration Regulations that the Service grant an extension of time
for Trust to make a qualified Subchapter S trust (QSST) election under § 1361(d)(2).

    The information submitted states that Trust is a shareholder of X, and that Trust

made an election to be treated as a QSST effective Date 1. Trust was treated as a
QSST for tax years beginning on Year 1 and ending on Year 2. Effective Date 2,
however, the trustee of Trust filed an election to convert Trust from a QSST to an ESBT.
The trustee now requests that the Service consent to revoke Trust's ESBT election as of
Date 2 and that it grant Trust an extension of time to re-elect to be treated as a QSST
effective Date 2.

   Section 1.1361-1(m)(6) of the Income Tax Regulations provides that an ESBT

election may be revoked only with the consent of the Commissioner. The application for
consent to revoke the election must be submitted to the Internal Revenue Service in the
PLR-107302-10 2

form of a letter ruling request under the appropriate revenue procedure.

   Section 301.9100-1(c) provides that the Commissioner may grant a reasonable

extension of time to make a regulatory election, or a statutory election (but no more than
6 months except in the case of a taxpayer who is abroad), under all subtitles of the
Internal Revenue Code except subtitles E, G, H, and I. Section 301.9100-1(b) defines
the term "regulatory election" as an election whose due date is prescribed by a
regulation published in the Federal Register or a revenue ruling, revenue procedure,
notice, or announcement published in the Internal Revenue Bulletin.

    Sections 301.9100-1 through 301.9100-3 provide the standards the

Commissioner will use to determine whether to grant an extension of time to make the
election. Section 301.9100-2 provides the rules governing automatic extensions of time
for making certain elections. Section 301.9100-3 provides the standards the
Commissioner will use to determine whether to grant an extension of time for regulatory
elections that do not meet the requirements of § 301.9100-2. Under § 301.9100-3, a
request for relief will be granted when the taxpayer provides evidence to establish to the
satisfaction of the Commissioner that (1) the taxpayer acted reasonably and in good
faith, and (2) granting relief will not prejudice the interests of the government.

    Based on the facts submitted and the representations made, we conclude that

Trust may revoke its ESBT election effective Date 2. We further conclude that the
requirements of § 301.9100-3 have been satisfied. As a result, Trust is granted an
extension of time of 120 days from the date of this letter to file a QSST election for Trust
effective Date 2. A copy of this letter should be attached to the Form 2553. A copy is
enclosed for that purpose.

   Except as expressly provided herein, we express or imply no opinion concerning

the federal tax consequences of any aspect of any transaction or item discussed or
referenced in this letter.

  This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of

the Code provides that it may not be used or cited as precedent.
PLR-107302-10 3

   In accordance with a power of attorney on file with this office, a copy of this letter

is being sent to X’s authorized representatives.

                                                 Sincerely,

                                                 Associate Chief Counsel
                                                 (Passthroughs and Special Industries)



                                       By:       _______________
                                                 Richard T. Probst
                                                 Branch Reviewer, Branch 2
                                                 Office of Associate Chief Counsel
                                                 (Passthroughs & Special Industries)

Enclosures (2):
Copy of this letter
Copy for § 6110 purposes

cc: