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:
------------------------------------ --------------------, ID No. ------------------
--------------------------- Telephone Number:
----------------------- ----------------------
Refer Reply To:
CC:PSI:B03
PLR-105875-18
Date:
August 29, 2018

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

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

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