PLR 200649024: Late S election relief granted with inconsistent effective-date labels

Plain-English summary

A corporation's sole shareholder intended S corporation treatment from incorporation, but no timely Form 2553 was filed. The IRS found reasonable cause and granted late-election relief under section 1362(b)(5), conditioned on filing a completed Form 2553 within 60 days of the letter. A copy of the ruling must accompany the form. The facts and legend identify the intended effective date as d1, while the conclusion grants relief for d2, which the release does not define. The IRS did not determine whether the corporation otherwise qualified as a small business corporation under section 1361(b).

Ruling snapshot

• Question: Could the corporation obtain relief for its untimely S election?
• Outcome: Approved subject to filing Form 2553 within 60 days; the conclusion's d2 date is undefined and differs from the facts' d1 label.
• Key authorities: IRC § 1362(b)(5); § 1361(b) eligibility expressly unruled.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200649024
Release Date: 12/8/2006
Index Number: 1362.01-03

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Refer Reply To:
CC:PSI:B02 – PLR-131244-06
Date:
August 25, 2006

Legend

X: -------------------------------
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A: --------------------------------
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State: --------

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

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

This responds to a letter dated April 10, 2006, and additional correspondence submitted on behalf of X by X’s authorized representative, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated in State on d1. A, the sole shareholder of X, intended for X to be an S corporation effective d1. 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.

PLR-131244-06
2

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.

Pursuant to a power of attorney on file with this office, a copy of this letter is being forwarded to X’s authorized representative.

Sincerely yours,

Bradford R. Poston
Senior Counsel, Branch 2
Associate Chief Counsel
(Passthroughs and Special Industries)

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

cc: