IRS consents to let a trust revoke its electing small business trust (ESBT) election

Plain-English summary

A trust that owns stock in an S corporation had elected to be treated as an "electing small business trust" (ESBT), one of the trust forms allowed to hold S corporation shares. The trustee later wanted to undo that election, but under the regulations an ESBT election can be revoked only with the IRS's consent, requested through a private letter ruling. The IRS granted consent, allowing the trust to revoke its ESBT election retroactive to the original effective date. The IRS expressly did not opine on any other consequences, including whether the company itself qualifies as a small business corporation. This is a routine but necessary permission slip: without the IRS's sign-off, the trust could not unwind the election.

Ruling snapshot

• Question: Will the IRS consent to a trust's revocation of its ESBT election effective as of the original election date?
• Outcome: approved (consent to revoke granted)
• Key authorities: IRC § 1361; Treas. Reg. § 1.1361-1(m)(6)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201848003
Third Party Communication: None
Release Date: 11/30/2018
Date of Communication: Not Applicable
Index Number: 1362.00-00, 1362.01-03
Person To Contact:
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--------------------, ID No. ------------------
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Telephone Number:
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Refer Reply To:
CC:PSI:B03
PLR-105875-18
Date:
August 29, 2018

Trust = ---------------------------------
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X = ---------------------------
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Date 1 = ----------------------------

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

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

This letter responds to your letter dated November 15, 2017, submitted on behalf of the Trust, requesting a ruling under § 1361 of the Internal Revenue Code that the Service consent to revoke the Trust’s electing small business trust (ESBT) election.

The information submitted states that the Trust was created on Date 1, and that it is a shareholder of X. The trustee of the Trust elected to treat the Trust as an ESBT effective Date 2. The trustee requests that the Service consent to revoke the Trust’s ESBT election as of 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 IRS in the form of a letter ruling request under the appropriate revenue procedure.

Based on the facts submitted and the representations made, we conclude that the Trust may revoke its ESBT election effective Date 2.

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of the facts described above under any other
PLR-105875-18
2

provision of the Code, including whether X is a small business corporation under
§ 1361(b).

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 requesting 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, a copy of this letter is being sent to the Trust’s authorized representative.

Sincerely,

Richard T. Probst
Senior Technician Reviewer, Branch 3
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

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