S election restored after missed QSST election

Plain-English summary

An S corporation requested relief after stock was transferred to a trust whose beneficiary did not timely make a Qualified Subchapter S Trust election. The IRS concluded that the corporation's S election terminated when the trust became an ineligible shareholder. The IRS also determined that the termination was inadvertent and allowed the corporation to continue to be treated as an S corporation from the termination date, subject to conditions. The beneficiary had to file the QSST election, and the corporation and shareholders had to file any required original or amended returns within 120 days.

Ruling snapshot

• Question: Can the corporation receive relief after its S election terminated because a trust beneficiary missed a QSST election?
• Outcome: Approved
• Key authorities: IRC §§ 1361, 1362, 6110

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202633009 Third Party Communication: None
Release Date: 8/14/2026 Date of Communication: Not Applicable
Index Number: 1362.02-00, 1362.04-00
Person To Contact:
----------------------------------- -----------------------------------, ID No. -------
--------------------------------------- -----------------
----------------------------------------------- Telephone Number:
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----------------------------- Refer Reply To:
CC:PSI:B03
PLR-119965-25

                                                       Date:
                                                       May 13, 2026


                                               LEGEND

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

State = -------------

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

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

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

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

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

    This responds to a letter dated November 19, 2025 and subsequent

correspondence, submitted on behalf of X by its authorized representatives, requesting
relief under § 1362(f) of the Internal Revenue Code (Code).

                                               FACTS

  The information submitted states that X was incorporated under the laws of State

on Date 1 and elected to be treated as an S corporation effective Date 2. On Date 3,
shares of X were transferred to Trust.
PLR-119965-25 2

    X represents that Trust was eligible to make a Qualified Subchapter S Trust

(QSST) election under § 1361(d)(2) effective Date 3. However, the Trust’s beneficiary
failed to make a QSST election for the trust to be an eligible S corporation shareholder.

   X represents that X and its shareholders filed their income tax returns

consistently with X having an S corporation election effective Date 2. X and its
shareholders agree to make any adjustments required by the Secretary as a condition
of obtaining relief under § 1362(f).

                              LAW AND ANALYSIS

    Section 1361(a)(1) provides that the term “S corporation” means, with respect to

any taxable year, a small business corporation for which an election under § 1362(a) is
in effect for such year.

   Section 1361(b)(1) defines a “small business corporation” as a domestic

corporation which is not an ineligible corporation and which does not (A) have more
than 100 shareholders, (B) have as a shareholder a person (other than an estate, a
trust described in § 1361(c)(2), or an organization described in § 1361(c)(6)) who is not
an individual, (C) have a nonresident alien as a shareholder, and (D) have more than 1
class of stock.

    Section 1361(d)(1) provides, in part, that in the case of a QSST with respect to

which a beneficiary makes an election under § 1361(d)(2), the trust is treated as a trust
described in § 1361(c)(2)(A)(i) and, for purposes of § 678(a), the beneficiary of the trust
is treated as the owner of that portion of the trust which consists of stock in an S
corporation with respect to which the election under § 1361(d)(2) is made.

  Section 1361(d)(2)(A) provides that a beneficiary of a QSST (or his legal

representative) may elect to have § 1361(d) apply.

     Section 1361(d)(3) defines a QSST as a trust, (A) the terms of which require that

(i) during the life of the current income beneficiary, there will be only one income
beneficiary of the trust, (ii) any corpus distributed during the life of the current income
beneficiary may be distributed only to such beneficiary, (iii) the income interest of the
current income beneficiary in the trust will terminate on the earlier of such beneficiary’s
death or the termination of the trust, and (iv) upon the termination of the trust during the
life of the current income beneficiary, the trust will distribute all of its assets to such
beneficiary, and (B) all of the income (within the meaning of § 643(b)) of which is
distributed (or required to be distributed) currently to one individual who is a citizen or
resident of the United States.

  Section 1362(d)(2) provides that an S corporation election will be terminated

whenever (at any time on or after the first day of the first taxable year for which the
corporation is an S corporation) such corporation ceases to be a small business
PLR-119965-25 3

corporation.

    Section 1362(f) provides, in relevant part, that if (1) an election under § 1362(a)

by any corporation was not effective for the taxable year for which made (determined
without regard to § 1362(b)(2)) by reason of a failure to meet the requirements of
§ 1361(b) or was terminated under § 1362(d)(2) or (3); (2) the Secretary determines that
the circumstances resulting in such ineffectiveness or termination were inadvertent; (3)
no later than a reasonable period of time after discovery of the circumstances resulting
in such ineffectiveness or termination, steps were taken so that the corporation for
which the election was made or termination occurred is a small business corporation;
and (4) the corporation for which the election was made or termination occurred, and
each person who was a shareholder in such corporation at any time during the period
specified pursuant to § 1362(f), agrees to make the adjustments (consistent with the
treatment of such corporation as an S corporation) as may be required by the Secretary
with respect to such period, then, notwithstanding the circumstances resulting in such
ineffectiveness or termination, such corporation will be treated as an S corporation
during the period specified by the Secretary.

                                  CONCLUSION

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

X’s S corporation election terminated on Date 3 because the Trust’s beneficiary failed to
timely make a QSST election under § 1361(d)(2). However, the termination of X’s S
corporation election was inadvertent within the meaning of § 1362(f). Accordingly, X will
be treated as an S corporation from Date 3 and thereafter, provided its S corporation
election is not otherwise terminated under § 1362(d).

    This ruling is subject to the conditions that within 120 days from the date of this

letter (1) the Trust’s beneficiary files a QSST election with respect to Trust, effective
Date 3, with the appropriate service center and (2) X and its shareholders file any
necessary original or amended returns for all open taxable years, consistent with the
relief granted in this letter. A copy of this letter should be attached to the QSST election
and any original or amended return.

   If the above conditions are not met, then this ruling is null and void. Further, if

these conditions are not met, X must notify the service center with which it filed its S
corporation election that its election terminated on Date 3.

   Except as specifically ruled above, we express or imply no opinion concerning

the federal tax consequences of the facts described above under any other provision of
the Code and the regulations thereunder, including whether X is otherwise a valid S
corporation or whether Trust is a valid QSST within the meaning of § 1361(d).

  The ruling contained in this letter is based on information and representations

submitted by X and accompanied by a penalty of perjury statement executed by an
PLR-119965-25 4

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.

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

copy of this letter to X’s authorized representatives.

                                            Sincerely,



                                                 _______________________________
                                                Elizabeth V. Zanet
                                                Senior Technician Reviewer, Branch 3
                                                Office of the Associate Chief Counsel
                                                (Passthroughs, Trusts, and Estates)

Enclosure
Copy for § 6110 purposes

cc: -------------------------
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