Has the IRS Gone Soft? PLR 200827029

I'm impressed.  The IRS never rests.  It released Private Letter Ruling 200827029 on July 4, 2008.

And an interesting ruling it is.  Company is an S Corp. One of its shareholders sold all of his Company stock to an LLC that was an ineligible S Corp shareholder.  Oops.  The Company later discovers the transfer and termination of its S Corp status.  Still later these shares were transferred by the LLC to its individual members.

The Company and its shareholders represented that the termination of the S Corp election was inadvertent and the Company was unaware that the LLC was an ineligible S Corp shareholder.

The Service ruled that the termination of the S Corp election was inadvertent and it unrung the bell.  The Company would continue as an S Corp as if the transfer to the LLC never occurred, the individual shareholders to whom the LLC transferred its shares would be deemed shareholders from the time of the original transfer to the LLC, and adjustments would be made for this period consistent with the treatment of the Company as an S Corp and the shareholders as S Corp shareholders. 

The transfer to the LLC never happened.

-Marc Ward