PLR 200605009: Late S corporation election allowed for new corporation

Plain-English summary

A corporation's sole shareholder intended S corporation status from the date of incorporation, but its Form 2553 was not filed on time. The IRS found reasonable cause for the missed deadline and granted relief under section 1362(b)(5). The election would be treated as timely if the corporation filed a completed Form 2553 with the appropriate service center within 60 days of the ruling. The IRS did not decide whether the corporation met the other requirements for S corporation status.

Ruling snapshot

• Question: Can the corporation make its S election effective from incorporation despite missing the filing deadline?
• Outcome: Approved, conditional on filing Form 2553 within 60 days.
• Key authorities: IRC § 1362(a), (b).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200605009
Third Party Communication: None
Release Date: 2/3/2006
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-147672-05
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Date: October 27, 2005

Legend

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

d1= -------------------

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

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

This letter responds to a letter dated August 31, 2005, written 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 effective 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.

PLR-147672-05
2

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 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 effective d1, within 60 days following the date of this letter, the election shall be treated as timely made.

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