PLR 200626029: Three shareholder company gets late S election relief

Plain-English summary

Three shareholders intended their corporation to elect S corporation treatment from a specified date, but the company did not file Form 2553 on time. The IRS found reasonable cause for the missed deadline. It agreed to treat the election as timely if the company filed a completed Form 2553 for the intended effective date within 60 days and attached the ruling. The IRS did not decide whether the corporation otherwise met the small business corporation requirements.

Ruling snapshot

• Question: Can the corporation's late S election take effect on the shareholders' intended date?
• Outcome: Approved, contingent on filing Form 2553 within 60 days.
• Key authorities: IRC §§ 1361(b) and 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200626029
Release Date: 6/30/2006
Index Number: 1362.01-03

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Telephone Number:
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Refer Reply To:
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CC:PSI:B02 – PLR-156190-05
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Date:
March 14, 2006

Legend

X: ---------------------
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A: ----------------------
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B: -------------------
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C: ---------------------
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State: -------------

d1: ----------------------

d2: ----------------------

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

This responds to a letter dated September 30, 2005, and additional correspondence submitted on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.
PLR-156190-05
2

The information submitted states that X was incorporated in State on d1. A, B and C, the shareholders of X, intended for X to be an S corporation effective d2. However, no Form 2553, Election by a Small Business Corporation, was timely filed for X.

Section 1362(b)(5) provides that if -- (A) an election under § 1362(a) is made for any taxable year after the date prescribed by § 1362(b) for making such election for such taxable year or no such election is made for any taxable year, and (B) the Secretary determines that there was reasonable cause for the failure to timely make such election, the Secretary may treat such an election as timely made for such taxable year.

Based solely on the facts and the representations submitted, we conclude that X has established reasonable cause for failing to make a timely election to be an S corporation effective d2. Accordingly, provided that X makes an election to be an S corporation by filing a completed Form 2553 with the appropriate service center effective d2 within 60 days following the date of this letter, then such election will be treated as timely made for X’s taxable year beginning d2. A copy of this letter should be attached to the Form 2553.

Except as specifically set forth above, no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the Code, including whether X was or is a small business corporation under § 1361(b).

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

Sincerely yours,

J. Thomas Hines
Chief, Branch 2
Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures (2)
Copy of this letter
Copy for § 6110 purposes