You represent Ilicita Construction Co. () a Construction ✓ Solved

You represent “Ilicita Construction Co.¬ () a Construction company with close to thirty (30) years of operating history. It was formed in Homestead, Florida in 1998 and builds medium to large residential and commercial buildings. The company started out with very limited earnings but now has a top line of $100,000,000. It has six (6) shareholders who are members of the same family, three brothers and three sisters. The Company has been filing S corporation returns Form 1120S since it’s first Form 1120S in 1999 for TYE 1998.

The Company was formed as a corporation in the State of Florida on June 30, 1998 according to Sunbiz.org and the original corporate filings there. The Company was selected for a random Audit by the IRS in the summer of 2025. The IRS agent set an information request which included a request for the original S Corporation determination letter and the originally filed Form 2553, signed by all of the shareholders. As the CPA, with primary authority for the engagement, you ask the Vice-President of the Client to check for the records in the Company’s corporate book or elsewhere for copies of the requested information. In addition, you send request letters to the Client’s prior Law Firm and CPA firm.

Unfortunately, the original accountant, a solo practitioner at the time, passed away 10 years ago and the accounting firm dissolved. No records were available. The Client has copies of S corp returns going back Seven (7) years and generally keys records that long as required by law. The Corporate book, unfortunately is not well documented. Your review of the book indicates that there are no minutes and shares have never been properly issued or just aren’t present in the corporate book.

The transfer records have not been filled out. Copies of the SS-4 and 2553 if any are not in the corporate book. None of the Corporate officers recalls or knows where these records are or if they were originally issued. Each of the shareholders insists that they signed and filed the Form 2553 shortly after formation. but no shareholder or prior accountant had a copy of the original s Corp filing or the approval letter from the IRS.  The IRS has no record of a 2553 being filed, but they did have the information on the SS-4 filed in 1998 that expressed a desire to be treated as an S corporation. Further, Construction co has filed an S corporation return for each year of its existence starting in 1999 and each shareholder has provided their ratable share of tax attributes on Schedule E of their returns and has included the income and paid tax on the amounts so reported, The two oldest male shareholders recently completed some estate planning transactions and each created one or more irrevocable trusts for which an ESBT election was required and made.

It is thought that the filing of the ESBT election may have triggered the audit. That is unclear. In any event, you see that one of the trusts, should have field a QSST rather than an ESBT Election. You need to advise the Client that you need to change that. As a result of the foregoing history, you are asked to request a private letter ruling in accordance with Revenue Procedure - Relief for Late S Corporation Election.

Requesting that the IRS retroactively approve S corporation status for the entity.    Please also pull IRM 21.7.4.4.4.11.2.1 You begin to get slightly nervous about the ruling request and Pull the appropriate Ruling request information available on Rev. Proc. 2025-1.   I provided this to you in Modules and Teams Your first task is to draft the facts you will believe are required to support a positive response from the IRS on your ruling request. Draft a Client letter requesting the facts from the Client . The facts you need are those that the Rev Proc.

IRM and general S corporation filings require. Start by accessing at least two AI sources and CCH answer Connect from the library and looking up Relief for Late S corporation elections. Use at least two AI sources to give you any help with drafting a client letter. Choose the one that in your opinion is the best source and modify the letter into a format that “you†believe expresses how you would want to communicate the requests and potential solution to your client. Your second task is to Convert the ESBT Election to a QSST election see Treas.

Reg. §1.1361-1(m) for one of the Trusts. Look this up on your preferred AI and on CCH Answer Connect. It should give you support information. Using Rev. Proc. 2025-1 and AI of your choosing as a guide, create the template for the Private Letter Ruling you will write including the required attachments.

Paper for above instructions

Introduction

This report addresses the request by Ilicita Construction Co., a family-owned construction company based in Homestead, Florida, formed in 1998, to obtain retroactive approval for its S corporation election under the Internal Revenue Code and related Treasury Regulations. The company, with six family-member shareholders, has consistently filed Form 1120S since 1999 and paid taxes as an S corporation, but lacks documentation of the original Form 2553 submission and IRS approval letter. The IRS audit initiated in 2025 raised questions about the company’s S corporation status and associated trust elections. The CPA representing the company must gather factual support for a Private Letter Ruling (PLR) request for relief for a late S corporation election under Revenue Procedure 2025-1 and correct a trust classification from an Electing Small Business Trust (ESBT) to a Qualified Subchapter S Trust (QSST) under Treasury Regulation §1.1361-1(m). This analysis includes a draft client letter requesting relevant facts, a discussion of necessary documentation, and a proposed PLR template with supporting authorities.

Company Background and Context

Ilicita Construction Co. was incorporated on June 30, 1998, in the State of Florida. The business has grown substantially from modest earnings to annual revenues of approximately $100 million. It has filed Form 1120S continuously since its first tax year ending in 1998, and each shareholder has reported income and losses consistent with S corporation treatment on their respective Schedule E forms. The IRS audit triggered by the recent trust elections revealed that the Service has no record of the original Form 2553. Despite this, the company’s filing and tax treatment history reflect an unbroken pattern of compliance consistent with S corporation status.

The situation is further complicated by the creation of irrevocable trusts during estate planning by two shareholders, who made ESBT elections for those trusts. One of these should have made a QSST election instead. The correction of this trust classification is necessary to preserve S corporation eligibility, as certain types of trusts (other than ESBT or QSST) are ineligible shareholders under IRC §1361(c)(2)(A).

Task 1: Draft Client Letter Requesting Facts and Documentation

Purpose of the Letter

The purpose of this letter is to collect all necessary information and supporting evidence to prepare a strong PLR submission that demonstrates reasonable cause for late filing and continuous intent to be treated as an S corporation. The IRS evaluates such requests under Revenue Procedure 2025-1 and IRM 21.7.4.4.4.11.2.1, which outline relief procedures for late S corporation elections.

Client Letter

[CPA Firm Letterhead]

Date: November 27, 2025
To: The Officers and Shareholders of Ilicita Construction Co.
From: [Your Name], CPA
Subject: Request for Information – Preparation of Private Letter Ruling for Late S Corporation Election

Dear Clients,

We are preparing a Private Letter Ruling (PLR) submission to the Internal Revenue Service (IRS) requesting relief under Revenue Procedure 2025-1 for a late S corporation election. The IRS requires that we provide complete and accurate facts demonstrating that Ilicita Construction Co. has continually intended to be treated as an S corporation and has consistently acted in accordance with such status since its inception.

Information Requested

Please provide the following information and documentation:

  • Copies of all filed Form 1120S returns since inception (or earliest available years).
  • Shareholder tax returns (Schedule E pages only) reflecting passthrough income from Ilicita Construction Co.
  • Copies of any correspondence between Ilicita Construction Co. and the IRS, including any EIN or SS-4 confirmation letters.
  • Corporate records or minutes showing intent to elect S corporation status in 1998 or 1999.
  • Any signed Form 2553 or correspondence prepared by the original accountant.
  • Shareholder ownership details, including dates of share acquisition and current percentages.
  • Documentation of irrevocable trusts formed by shareholders, including executed trust agreements and dates of elections (ESBT/QSST).
  • Evidence of continuous tax treatment as an S corporation, such as shareholder distributions or K-1 statements.
  • Names, addresses, and contact details of prior CPA and legal counsel for follow-up verification.

Please compile the above items within ten (10) business days. Upon receipt, we will assemble the supporting documentation and prepare the formal PLR submission. This will include an analysis of your compliance history, a representation of continuous S corporation filing, and an explanation of why relief under Rev. Proc. 2025-1 is appropriate.

We will also address the trust classification issue, converting one ESBT election to a QSST election under Treas. Reg. §1.1361-1(m). This correction will ensure that the trust qualifies as a permissible shareholder of an S corporation and avoid inadvertent termination of S status.

Thank you for your prompt attention to this matter. Please contact me directly with any questions or clarifications.

Sincerely,

[Your Name], CPA
[Your Firm Name]
[Contact Information]

Task 2: Facts Required to Support Positive IRS Response

To support a favorable IRS determination, the PLR must clearly document that:

  1. The company was eligible to make an S election when formed (domestic corporation, allowable shareholders, and only one class of stock).
  2. All shareholders intended and consented to S corporation treatment since incorporation.
  3. The company has consistently filed Form 1120S and shareholders have reported income accordingly.
  4. Failure to file Form 2553 timely was inadvertent and not due to willful neglect.
  5. Granting relief will not prejudice the government’s interests or result in tax avoidance.
  6. The IRS has records of the EIN request (Form SS-4) indicating intent to be treated as an S corporation.

These elements align with IRS guidance under Rev. Proc. 2025-1, Section 4.02(2), and IRM 21.7.4.4.4.11.2.1, which specify that consistent treatment by the taxpayer and shareholders may justify retroactive approval for late elections.

Task 3: Conversion from ESBT to QSST Election

One of the shareholder’s trusts made an Electing Small Business Trust (ESBT) election, which is valid under IRC §1361(e) but not appropriate for the trust’s structure. The trust qualifies instead as a Qualified Subchapter S Trust (QSST) under Treas. Reg. §1.1361-1(m). The difference lies in the income allocation and tax reporting structure:

  • ESBT: The trust itself pays tax on S corporation income at the highest individual rate.
  • QSST: The income is taxed directly to the single income beneficiary, preserving flow-through benefits.

To correct this, a QSST election must be filed under IRC §1361(d)(2) within 2 months and 15 days of the date the trust acquires stock. The correction request to the IRS should include a statement explaining that the election error was inadvertent and that all parties have consistently treated the trust as a QSST. Relief is generally granted if consistent treatment can be demonstrated, according to Rev. Proc. 2013-30 (which remains relevant through incorporation into later revenue procedures).

Task 4: Private Letter Ruling (PLR) Template

Below is a proposed PLR template for Ilicita Construction Co.’s request for relief under Rev. Proc. 2025-1:

Private Letter Ruling Request

To: Internal Revenue Service
Associate Chief Counsel (Passthroughs and Special Industries)

Subject: Request for Relief for Late S Corporation Election under Rev. Proc. 2025-1

Dear Commissioner:

Pursuant to Rev. Proc. 2025-1, this letter respectfully requests that the Internal Revenue Service grant relief for the late filing of Form 2553, Election by a Small Business Corporation, on behalf of Ilicita Construction Co., EIN [insert number], incorporated June 30, 1998, in Homestead, Florida. The corporation failed to timely file Form 2553 due to inadvertent oversight by its original accountant, who has since deceased. The company and its shareholders have, since inception, consistently treated the entity as an S corporation for all federal income tax purposes.

Facts

  • The corporation was eligible to elect S corporation status under IRC §1361(b).
  • All shareholders were U.S. citizens and signed consents to the S election.
  • The corporation timely filed Form 1120S for all taxable years beginning in 1999.
  • All shareholders reported their distributive shares of income on Schedule E and paid appropriate taxes.
  • The IRS’s records include an SS-4 indicating the company’s intent to be taxed as an S corporation.
  • Failure to file Form 2553 timely was inadvertent and due to the death of the original CPA, not willful neglect.
  • Relief under Rev. Proc. 2025-1, Section 5.03, is requested to approve the election retroactively to June 30, 1998.

Law and Analysis

Under IRC §1362(b)(5), the IRS may grant relief for a late S election if it determines that the entity intended to be an S corporation and the failure to file timely was inadvertent. The company’s consistent treatment, filing history, and shareholder compliance satisfy the reasonable cause criteria described in Rev. Proc. 2025-1. No shareholder has filed as a C corporation, and no distributions or deductions inconsistent with S status have occurred.

Conclusion and Request

Based on the facts presented, Ilicita Construction Co. requests that the IRS grant relief for a late S election effective for the tax year ending December 31, 1998, and that the corporation be recognized as an S corporation from that date forward.

Attachments

  • Form 2553 (re-executed and signed by all shareholders)
  • Copies of Form 1120S filings (selected years)
  • Shareholder Schedule E excerpts
  • Corporate Articles of Incorporation
  • Trust documents and correction of ESBT/QSST election
  • Affidavit of reasonable cause

Conclusion

The Ilicita Construction Co. case demonstrates the importance of maintaining organized corporate records and ensuring accurate tax elections. The company’s consistent S corporation treatment and shareholder compliance over nearly three decades strongly support its eligibility for retroactive relief. By documenting intent, demonstrating continuous compliance, and addressing the trust election error, the CPA can present a compelling case to the IRS. Corrective actions under Rev. Proc. 2025-1 and Treas. Reg. §1.1361-1(m) will preserve the company’s S corporation status and prevent adverse tax consequences for both the entity and its shareholders.

References

  1. Internal Revenue Service. (2025). Revenue Procedure 2025-1.
  2. Internal Revenue Service. (2025). IRM 21.7.4.4.4.11.2.1 – Relief for Late S Corporation Election.
  3. Internal Revenue Code §1361–1362.
  4. Treasury Regulation §1.1361-1(m).
  5. Revenue Procedure 2013-30, 2013-36 I.R.B. 173.
  6. CCH AnswerConnect. (2025). Late S Corporation Election Relief Procedures.
  7. KPMG Tax Management Portfolio. (2024). Subchapter S Corporations – Eligibility and Elections.
  8. Bloomberg Tax. (2024). Private Letter Ruling Requests and IRS Procedures.
  9. Florida Department of State, Sunbiz.org. (1998). Corporate registration for Ilicita Construction Co.
  10. American Institute of CPAs. (2023). Best Practices in IRS Representation for Entity Classification.