If
the Subchapter S corporation election is inadvertently terminated, the corporation may qualify to
act as though the terminating event had not occurred, thus allowing the
Subchapter S corporation to continue as an S corporation [IRC §1362(f)]. A terminating
event may be inadvertent if the event was not reasonably within the
control of the
To continue as a Subchapter S corporation after a
terminating event, all of the following must occur:
• Subchapter S corporation election must have terminated either
because the corporation no longer qualified as a small business
corporation or because the corporation had C corporation E&P and
reported excess passive investment income for three consecutive years;
• IRS must determine that the Subchapter S corporation termination was inadvertent;
• Within a reasonable amount of time after discovering the termination,
the Subchapter S corporation must take steps to correct the problem;
• Both the shareholders and the Subchapter S corporation must agree to the
adjustments proposed by the IRS; and
• Subchapter S corporation must formally request a private letter ruling for
inadvertent termination relief.
To Request a Private Letter Ruling,
Write: Internal Revenue Service, Associate Chief Counsel (Domestic),
Attn: CC:DOM:CORP:TSS, PO Box 7604, Ben Franklin Station, Washington, D.C.
20044.
The request must include the name, address,
and ID number of all shareholders and the Subchapter S corporation; the number of
shares owned by each shareholder; the dates of all events; explanation of
the terminating event; how the
termination was discovered; steps taken to correct the error; and a statement
asserting that both the shareholders and Subchapter S corporation agree to any adjustments
the IRS makes that are consistent with continuing to be treated as a
Subchapter S corporation.
