IRS consents to an early re-election of S corporation status after a change of ownership
Plain-English summary
A corporation had been an S corporation, but its S election terminated.
Normally, once an S election ends, the company cannot elect S status
again for five years unless the IRS consents. After the termination, a
new owner bought all the interests in the company from the former owners.
The company asked the IRS to let it re-elect S status early. Under IRC
§ 1362(g) and Treasury Regulation § 1.1362-5(a), the IRS may waive the
five-year wait, and the fact that more than 50 percent of the stock is
now held by people who did not own it at the time of termination weighs
in favor of consent. The IRS found the company met its burden and
consented to an early re-election, so long as it files Form 2553 within
120 days. This matters because a change of control is a recognized basis
to escape the five-year lockout and restore pass-through tax treatment
sooner.
Ruling snapshot
- Question: Should the IRS consent under § 1362(g) to let a corporation re-elect S status before the five-year waiting period expires?
- Outcome: Approved (consent granted; Form 2553 due within 120 days)
- Key authorities: IRC §§ 1362(a), 1362(d), 1362(g); Treas. Reg. § 1.1362-5(a); IRC § 6110(k)(3)
Full text (IRS public release)
Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 202619011
Release Date: 5/8/2026
Index Number: 1362.00-00, 1362.01-02
Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
------------------------, ID No. -----------------
Telephone Number:
Refer Reply To:
CC:PT&E:01
PLR-114883-25
Date:
February 02, 2026
LEGEND
X = ---------------------------------------------------------------------------------------------------
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Date 1 = -----------------------
Date 2 = --------------------------
Date 3 = ----------------------
State = -----------
A = ---------------------------------------------------------------------------------------------------
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B = ---------------------------------------------------------------------------------------------------
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C = ---------------------------------------------------------------------------------------------------
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Dear ----------------:
This responds to a letter dated August 12, 2025, 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).
PLR-114883-25 2
FACTS
X was formed in State and elected to be treated as an S corporation effective Date 1. X's S corporation election terminated effective Date 2. C acquired all the interests in X from A and B on Date 3. As of the date of the termination of X's S corporation election, C was not an owner of X. X now requests permission to be an S corporation, effective Date 3. Date 3 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 an S corporation effective Date 3. 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 3 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 3. A copy of this letter should be attached to the Form 2553.
PLR-114883-25 3
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,
__/s/_____
Laura C. Fields
Branch Chief, Branch 1
Office of the Associate Chief Counsel
(Passthroughs, Trusts, and Estates)
Enclosure
Copy for § 6110 purposes
cc: ---------------