PLR 200542010: Corporation gets more time to file its S election

Plain-English summary

A corporation intended to elect S corporation status when it was formed, but it missed the deadline to file Form 2553. The IRS found reasonable cause for the late filing under section 1362(b)(5). It ruled that the election would be treated as timely if the corporation filed a completed Form 2553, effective on its formation date, with a copy of the letter within 60 days. The IRS did not decide whether the corporation otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Could the corporation make its S election effective on its formation date despite missing the filing deadline?
• Outcome: Approved, if it files Form 2553 and the letter within 60 days.
• Key authorities: IRC § 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200542010
Third Party Communication: None
Release Date: 10/21/2005
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:B03
PLR-111390-05
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Date: July 14, 2005

X = ----------------------------------
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A = ------------------------
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d1 = ---------------------

State = ----------------

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

This letter responds to a letter dated January 20, 2005, on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

Facts

X was incorporated under State law on d1. X’s sole shareholder, A, intended for X to be an S corporation as of d1. However, X’s Form 2553, Election by a Small Business Corporation, was not filed timely.

X requests a ruling that it will be recognized as an S corporation effective for the taxable year beginning d1.

Law and Analysis

Section 1362(a)(1) provides that a small business corporation may elect to be an S corporation. Section 1362(b)(1) provides that the election shall be effective for the current taxable year if it is made during the preceding taxable year or before the 15th day of the third month of the current taxable year. Section 1362(b)(3) provides that an

PLR-111390-05
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election made after the 15th day of the third month of the current taxable year shall be treated as having been made for the following taxable year.

Section 1362(b)(5) provides that if an election under § 1362(a) is made for any taxable year (determined without regard to § 1362(b)(3)), after the date prescribed by § 1362(b) for making the election for the taxable year or no § 1362(a) election is made for any taxable year, and the Secretary determines that there was reasonable cause for the failure to make the election, then the Secretary may treat the election as timely made for the taxable year and § 1362(b)(3) shall not apply.

Conclusion

Based on the facts submitted and representations made, we conclude that X has established reasonable cause for failing to make an S corporation election. Thus, we conclude that X is eligible for relief under § 1362(b)(5). Accordingly, if X makes an election to be an S corporation by filing with the appropriate service center a completed Form 2553 within 60 days of this letter, containing an effective date of d1, the election shall be treated as timely made for X’s taxable year beginning d1. A copy of this letter should be attached to the Form 2553 filed with the Service Center. A copy is enclosed for that purpose.

Except as expressly provided herein, we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter. Specifically, we express or imply no opinion concerning whether X is otherwise eligible to be an S corporation for federal tax purposes.

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

This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

Sincerely,

Mary Beth Collins
Senior Technician Reviewer, Branch 3
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosures (2)
A copy of this letter
A copy for § 6110 purposes cc: