Trust may revoke ESBT election and restore QSST treatment

Plain-English summary

A trust that owned stock in an S corporation had originally elected qualified Subchapter S trust treatment. Its trustee later converted the trust to an electing small business trust and then asked to undo that change from the conversion date. The IRS consented to revocation of the ESBT election and found that the trust met the standards for late-election relief. It granted 120 days to file a QSST election effective on the same date as the revoked ESBT election. The ruling does not decide whether the corporation otherwise qualifies as a small business corporation or whether the trust meets the substantive QSST requirements.

Ruling snapshot

• Question: May the trust revoke its ESBT election and late-file a QSST election effective on the same date?
• Outcome: Approved, with 120 days to file the QSST election.
• Key authorities: IRC § 1361; Treas. Reg. §§ 1.1361-1(m)(6), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201807004 Third Party Communication: None
Release Date: 2/16/2018 Date of Communication: Not Applicable
Index Number: 1362.00-00, 1362.01-00,
1362.01-03, 9100.00-00, Person To Contact:
9100.22-00 ------------------------, ID No. ------------------
----------------------------------------------------
--------------------------------------------- Telephone Number:
---------------------------------------- --------------------
------------------------------ Refer Reply To:
--------------------------------- CC:PSI:B3
PLR-118512-17
Date:
November 15, 2017

LEGEND

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

X = -------------------------------
-------------------------

Date1 = ----------------------------

Date2 = ---------------------

Year1 = ----------------------------

Year2 = --------------------------

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

   This letter responds to your letter dated June 8, 2017, 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 § 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
PLR-118512-17 2

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
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 with the appropriate service center. A copy of this letter should be
attached to the QSST election.

   Except as specifically set forth above, no opinion is expressed concerning the

federal tax consequences of the facts described above under any other provision of the
Code, including whether X is a small business corporation under § 1361(b), or whether
Trust is a QSST within the meaning of § 1361(d)(3).

   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.

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

provides that it may not be used or cited as precedent.
PLR-118512-17 3

   Pursuant to a power of attorney on file, a copy of this letter is being sent to X’s

authorized representatives.

                                   Sincerely,


                                   Bradford R. Poston
                                   Bradford R Poston
                                   Senior Counsel, Branch 3
                                   Office of Associate Chief Counsel
                                   (Passthroughs & Special Industries)

Enclosures: Copy of this letter
Copy for § 6110 purposes

cc: