Here are the facts of PLR 200841007 (June 30, 2008). An S corporation was owned entirely by an individual through his or her wholly-owned LLC, a disregarded entity for tax purposes. The individual transferred interests in the LLC to five trusts, all wholly-owned grantor trusts with respect to the individual. Later in the same year as the transfer to the trusts, the individual dies an the LLC becomes a partnership for tax purposes, ineligibleto be a shareholder in an S corporation. Again in the same year, the LLC was liquidated and its stock in the corporation was distributed to the trusts.
The corporation represented to the Service that the circumstances resulting in the termination of the S election were inadvertent and not motivated by tax avoidance or retroactive tax planning. The IRS granted the corporation's request to be treated as an S corporation despite the disqualifying events.
The shareholder's death was foreseeable and the consequences predictable. What will the Service consider not to be inadvertent?
-Marc Ward
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