PLR 200638023: Late S corporation election treated as timely

Plain-English summary

A company intended to be an S corporation from its formation but missed the deadline to file Form 2553. It and its shareholder had filed tax returns consistently with S corporation treatment. The IRS found reasonable cause for the late election and ruled that it would be treated as timely under section 1362(b)(5). The relief depended on filing Form 2553 within 60 days of the letter. The IRS did not decide whether the company otherwise qualified as an S corporation.

Ruling snapshot

• Question: Could the company's late S corporation election be treated as timely?
• Outcome: Approved, contingent on 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: 200638023
Third Party Communication: None
Release Date: 9/22/2006
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:3
PLR-164608-05
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Date:
June 13, 2006

Company: -------------------------------
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Shareholder: ---------------------------
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State: -------------------

a: -------------------

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

This letter responds to a letter from your authorized representative dated December 13, 2005, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code that Company's late election under § 1362(a) to be an S corporation will be treated as timely made.

FACTS

Company was incorporated under the laws of State on a. Shareholder intended Company to be an S corporation from inception; however, Form 2553 (Election by a Small Business Corporation) was not timely filed with the Internal Revenue Service. Company has filed timely federal tax returns (Form 1120S – U.S. Income Tax Return for an S Corporation) for all relevant tax years, and Shareholder has timely filed her own federal tax returns (Form 1040 – U.S. Individual Income Tax Return) for the same years, consistent with Company’s intended status as an S corporation.

LAW AND ANALYSIS

Section 1362(b)(1) provides, in general, that an election by a small business corporation under § 1362(a) to be an S corporation may be made for any tax year (A) at any time during the preceding tax year, or (B) at any time during the tax year and on or before the 15th day of the 3d month of the tax year.
PLR-164608-05
2

Section 1362(b)(3) provides that if (A) a small business corporation makes an election under § 1362(a) for any tax year, and (B) that election is made after the 15th day of the 3d month of the tax year and on or before the 15th day of the 3d month of the following tax year, then that election shall be treated as made for the following tax year.

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

CONCLUSION

Based on the facts and representations submitted, we rule that Company has established reasonable cause for its failure to make a timely election under § 1362(a) and that such election by Company is to be treated under § 1362(b)(5) as filed timely for its tax year beginning a. This ruling is contingent on Company filing Form 2553, to be effective on a, with the appropriate service center no later than 60 days from the date of this letter. A copy of this letter should be attached to the Form 2553.

Except for the specific ruling above, we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the Code. Specifically, we express or imply no opinion on whether Company otherwise is eligible to be an S corporation.

Under a power of attorney on file with this office, we are sending a copy of this letter to your authorized representative.

This ruling is directed only to the taxpayer on whose behalf it was requested.
According to § 6110(k)(3), this ruling may not be used or cited as precedent.

Sincerely,

/s/
JAMES A. QUINN
Senior Counsel, Branch 3
Office of Associate Chief Counsel
(Passthroughs and Special Industries)

enclosures: copy of this letter copy for § 6110 purposes

cc: