IRS PLR: Invalid S Corporation Election Deemed Inadvertent (IRC §1362)

The ineffectiveness of an small business corporation’s (“X”) S status was ruled inadvertent under Section 1362(f). Therefore, X will be treated as an S corporation as of the intended election date. The invalidity was caused by lack of consent from “A,” who had community property shares in X by virtue of being the spouse of an X shareholder. Had the election been valid, it would have terminated on a later date when a change in stock ownership caused shares to be held by an ineligible shareholder, and such termination would have been inadvertent, the IRS commented. According to ...