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Contents : Internal Revenue Service Department of the Treasury Washington DC 20224 Number: 200838016 Release Date: 9/19/2008 Index Number: 1362.04-00 Person To Contact: ----------------------------------------------------------------------------------------------------------------- Telephone Number: -------------------- ID No. --------------------------------Refer Reply To: CC:PSI:B01 PLR-113638-08 Date: 5/30/2008 Legend X --------------------------------------------------------------------------------------C ------------------------------------------------------------------------------------H -------------------------- Trust A -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------Trust B -------------------------------------------------------------------------------------------------------------------------------------------------------------------------Trust C ---------------------------------------------------------------------------------------------------------------------------------------------------------------Trust D --------------------------------------------------------------------------------------------------------------------------------------------------------------------------Trust E ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- PLR-113638-08 2 Trust F --------------------------------------------------------------------------------------------------------------------------------Trust K ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------State ------------------ Date 1 ------------------ Date 2 ---------------------- Date 3 -------------------------- Date 4 -------------- Date 5 ----------------------- Dear ---- ------: This responds to a letter dated March 17 2008 and subsequent correspondence submitted on behalf of X requesting inadvertent invalid S corporation election relief pursuant to 1362(f) of the Internal Revenue Code. In addition your letter is also seeking relief allowing Trust A Trust E and Trust K to file late elections to be treated as electing small business trusts (ESBTs). In addition your letter is also seeking relief allowing Trust B and Trust D to file late elections to be treated as qualified subchapter S trusts (QSSTs). Facts Based on the information submitted and representations made therein we understand the relevant facts to be as follows. 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 2 Trust A Trust B Trust C Trust D Trust E Trust F and Trust K among others were shareholders of X. The trust agreements for Trust A Trust E and Trust K each contained provisions that permitted distributions of corpus to be made other than to the income beneficiary of each trust. Further Trust E requires income to be distributed to more than one beneficiary to C and to her children. Trust A Trust E and Trust K are all eligible to file ESBT elections pursuant to 1361(e)(3) to be treated as ESBTs. Nevertheless Trust PLR-113638-08 3 A Trust E and Trust K did not elect to be treated as ESBTs. At the time of its S corporation election X and its shareholders were unaware that Trust A Trust E and Trust K did not meet the requirements of 1361(d)(3)(A) and therefore were ineligible shareholders of an S corporation. Trust B and Trust D are both eligible to file QSST elections pursuant to 1361(d)(2) to be treated as QSSTs. The income beneficiaries of Trust B and Trust D each reported the beneficiary s distributable share of X s items of income loss deductions and credits if any as if Trust B and Trust D each had a valid QSST election in effect. Nevertheless no election was made to treat Trust B and Trust D as QSSTs. Trust C was a grantor trust under subpart E of part I of subchapter J of chapter 1 of the Code with all income from Trust C payable to C. H was a general partnership formed by employees of the institutional trustee of Trust A Trust B Trust C Trust D Trust E and Trust F to act as a nominee holder of closely-held securities held in accounts of trusts for which the institutional trustee acted as trustee. X timely filed Form 2553 Election by a Small Business Corporation prior to Date 3. However the trustee of Trust K did not execute the Form 2553 filed by X and thereby did not properly consent to X s election to be an S corporation. Further Trust A Trust B Trust D Trust E and Trust K were not or were not deemed to be eligible shareholder

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