PLR 1320012: IRS permits a corporation to re-elect S corporation status early

Plain-English summary

The IRS considered a corporation's request to re-elect S corporation status before the normal five-year waiting period had expired after its earlier S election was terminated. The corporation's former sole shareholder had died, and the stock was distributed to beneficiaries who wanted the corporation to return to S corporation status. The IRS concluded that the corporation met the regulatory standard for early consent. It permitted the corporation to re-elect S corporation status, provided that it timely filed Form 2553 within 120 days of the letter.

Ruling snapshot

• Question: May the corporation re-elect S corporation status before the five-year waiting period expires?
• Outcome: Approved
• Key authorities: IRC § 1362(g); Treas. Reg. § 1.1362-5

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201320012 Third Party Communication: None
Release Date: 5/17/2013 Date of Communication: Not Applicable
Index Number: 1362.01-02
Person To Contact:
---------------------------------------- ---------------------, ID No. -----------------
----------------------------- Telephone Number:
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---------------------------------------------- Refer Reply To:
CC:PSI:B03
PLR-143590-12
Date:
January 09, 2013

                                               LEGEND

Company = --------------------------------------------------------------------------------------------------------------------

A = --------------------------------------------------------------------------------------------------------------------
-------------------------

B = --------------------------------------------------------------------------------------------------------------------
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C = --------------------------------------------------------------------------------------------------------------------
--------------------------

D = --------------------------------------------------------------------------------------------------------------------
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State = -----------

Date 1 = -------------------------

Date 2 = ----------------------

Date 3 = ---------------------------

Date 4 = ---------------------------

Date 5 = ----------------------
PLR-143590-12 2

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

  This letter responds to a letter dated October 2, 2012, and subsequent

correspondence, submitted on behalf of Company by its authorized representative,
requesting a ruling under § 1362(g) of the Internal Revenue Code.

                                      FACTS

    Company was incorporated in State on Date 1. Effective Date 2, A, Company’s

sole shareholder, elected to terminate Company’s S election. On Date 3, A died. A’s
estate held A’s Company stock until it disbursed the stock to A’s beneficiaries, B, C, and
D, on Date 4. B, C, and D want Company to be an S corporation and request
permission for Company to re-elect to be an S corporation effective Date 5. Date 5 is
prior to the expiration of the five-year waiting period imposed by § 1362(g).

                              LAW AND ANALYSIS

  Section 1362(a) provides that except as provided in § 1362(g), a small business

corporation may elect to be an S corporation.

  Section 1362(d)(1) provides that an election under § 1362(a) may be terminated

by revocation.

     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 for five taxable years as described
in § 1362(g). The Commissioner, however, 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.

                                  CONCLUSION

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

Company has met its burden under § 1.1362-5(a). We grant permission for Company
PLR-143590-12 3

to re-elect to be an S corporation effective Date 5. Accordingly, provided that Company
makes an election to be an S corporation by filing a completed Form 2553, Election by a
Small Business Corporation, with the appropriate service center effective Date 5 within
120 days following the date of this letter, then such election will be treated as timely
made for Company’s taxable year beginning Date 5. A copy of this letter should be
attached to the Form 2553.

   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. Specifically, we express or imply no opinion concerning
whether Company is otherwise eligible to be an S corporation.

  In accordance with a power of attorney on file with this office, we are sending a

copy of this letter to Company’s authorized representative.

  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.

                                  Sincerely,

                                  /s/

                                  James A. Quinn
                                  Senior Counsel, Branch 3
                                  Office of the Associate Chief Counsel
                                  (Passthroughs & Special Industries)

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

cc: