SECTION 6. RELIEF FOR CERTAIN

LATE ESBT AND QSST ELECTIONS UNDER THIS REVENUE PROCEDURE

.01 Eligibility for Automatic Relief. A corporation is eligible for inadvertent invalid election relief or inadvertent termination relief under section 6.03 of this revenue procedure if it meets the following requirements:

(1) The corporation’s S corporation election was invalid or terminated solely because the beneficiary of a QSST (or the beneficiary’s legal representative) failed to file a timely QSST election pursuant to § 1361(d)(2) or the trustee of a trust that would otherwise qualify as an ESBT failed to file a timely ESBT election pursuant to § 1361(e)(3);

(2) All taxpayers whose tax liability and tax returns would be affected by the QSST or ESBT election (including the trust itself and, in the case of a QSST, the beneficiary of the trust) have reported their income (on all affected returns) consistent with the corporation’s S corporation election for the year the QSST or ESBT election should have been made, as well as for any subsequent year;

(3) The failure to file a timely QSST or ESBT election was inadvertent; and

(4) Within 24 months of the original due date of the election, the beneficiary of the QSST or the trustee of the ESBT files the election pursuant to this revenue procedure.

November 16, 1998 30 1998–46 I.R.B.

.02 Procedural Requirements for Auto- matic Relief.

The current income beneficiary (in the case of a QSST) or the trustee (in the case of an ESBT) of the trust must sign and file the appropriate election with the applicable service center. This election must state at the top “FILED PURSUANT TO REV. PROC. 98–55” and include the following material:

(1) The names, addresses, and taxpayer identification numbers of the current income beneficiary (in the case of a QSST), the trust, and the corporation;

(2) A statement identifying the election as an election under § 1361(d)(2) or § 1361(e)(3);

(3) The date on which the stock of the corporation was originally transferred to the trust;

(4) In the case of a QSST, an affidavit from the trustee stating that the trust satisfies the QSST requirements of § 1361(d)(3) and that the income distribution requirements have been and will continue to be met;

(5) In the case of an ESBT, an affidavit from the trustee stating that all potential current beneficiaries meet the shareholder requirements of § 1361(b)(1) and that the trust satisfies the requirements of an ESBT under § 1361(e)(1) other than the requirement to make an ESBT election;

(6) An affidavit from the current income beneficiary (in the case of a QSST) or the trustee (in the case of an ESBT) stating that the failure to file the relevant election was inadvertent and that the beneficiary or trustee acted diligently to correct the mistake upon its discovery;

(7) Affidavits from all shareholders during the period between the date the S corporation election terminated or was to have become effective and the date the completed election was filed (including the trust itself and, in the case of a QSST, the beneficiary of the trust) stating that they have reported their income (on all affected returns) consistent with the S corporation election for the year the election should have been made and for any subsequent year; and

(8) A dated declaration, signed by the current income beneficiary (in the case of a QSST) or the trustee (in the case

of an ESBT), which states: “Under penalties of perjury, I declare that, to the best of my knowledge and belief, the facts presented in support of this election are true, correct, and complete.”

.03 Automatic Relief for Late ESBT and QSST Elections. Corporations that satisfy the requirements of sections 6.01 and 6.02 of this revenue procedure will automatically be granted relief pursuant to the provisions of § 1362(f). Thus, the corporation will be treated as an S corporation for the period beginning on the date of termination or the date on which the election was to have become effective, whichever applies, and ending on the date the completed ESBT or QSST election is filed, and thereafter, unless the S corporation election is otherwise terminated under § 1362(d). In addition, during such period, the trust will be treated as a trust described in § 1361(c)(2)(A), and the rules applicable to ESBTs or QSSTs will apply. In the case of a QSST, the beneficiary of the trust will be treated, for purposes of § 678, as the owner of that portion of the trust consisting of S corporation stock.