PLR 200521020: Surviving corporation gets relief for missed S election

Plain-English summary

One corporation was already an S corporation when it merged into a newer corporation that survived the merger. The surviving corporation had intended to elect S status from a specified earlier date but missed the filing deadline. The IRS found reasonable cause for the late election and ruled that the surviving corporation would be recognized as an S corporation from that date if it otherwise qualified. It had to file a completed Form 2553 with the ruling attached within 60 days. The ruling did not decide other tax consequences of the merger.

Ruling snapshot

• Question: Could the surviving corporation's late S election take effect on its intended date?
• Outcome: Approved, subject to other qualification requirements and filing Form 2553 within 60 days.
• Key authorities: IRC § 1362(a), (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200521020
Third Party Communication: None
Release Date: 5/27/2005
Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:B01
PLR-159490-04
Date:
February 25, 2005

Legend

X = --------------------------------------------------
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Y = --------------------------------------------------
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D1 = ---------------------

D2 = ----------------------

D3 = ---------------------

D4 = ----------------------

D5 = --------------------------

State1 = ---------

State2 = ----------------

Dear ----------------------:

This responds to a letter dated November 5, 2004, submitted on behalf of X, requesting relief under § 1362(b)(5) of the Internal Revenue Code.

FACTS

According to the information submitted, Y was incorporated on D1 under the laws of State1. Effective D2, Y elected to be an S corporation. On D3, X was incorporated
PLR-159490-04
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pursuant to the laws of State2. X intended to file an election to be an S corporation effective D4, but the election was not timely filed. On D5, X and Y merged with X being the surviving company.

LAW AND ANALYSIS

Section 1362(a) provides that a small business corporation may elect to be an S corporation.

Section 1362(b) provides the rule on when an S election will be effective. If an S election is made within the first two and one-half months of a corporation’s taxable year, then the corporation will be treated as an S corporation for the year in which the election is made. If the election is made after the first two and one-half months of a corporation’s taxable year, then the corporation will not be treated as an S corporation until the taxable year after the year in which the S election is made.

Section 1362(b)(5) provides that if no election is made pursuant to § 1362(a), or, if made, the election is made after the date prescribed for making such an election, and the Secretary determines there was reasonable cause for the failure to timely make the election, then the Secretary may treat such election as timely made for such taxable year and effective as of the first day of that year.

X did not file a timely election to be treated as an S corporation under § 1362(a) effective D4. X has, however, established reasonable cause for not making a timely election and is entitled to relief under § 1362(b)(5).

CONCLUSION

Based solely upon the facts submitted and representations made, and provided that X otherwise qualifies as a subchapter S corporation, we conclude that X will be recognized as an S corporation effective D4. Within 60 days from the date of this letter, X should submit a properly completed Form 2553, with a copy of this letter attached, to the relevant service center.

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter.

This ruling is directed only to the taxpayer(s) requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.
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The rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination.

In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representative.

Sincerely,

/s/ Dianna K. Miosi

Dianna K. Miosi
Chief, Branch 1
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures (2)

Copy of this letter
Copy for section 6110 purposes