PLR 200650013: Late S corporation election accepted with a 60-day filing condition

Plain-English summary

A corporation intended S corporation status from inception but failed to file Form 2553 on time. The corporation and its shareholder timely filed returns consistent with that intended status. The IRS found reasonable cause and granted late-election relief under section 1362(b)(5). The corporation must file Form 2553 with the intended effective date within 60 days of the letter and attach a copy of the ruling. The IRS did not determine whether the corporation otherwise qualifies for S corporation status.

Ruling snapshot

• Question: Will an omitted S corporation election be treated as timely from the intended inception date?
• Outcome: Approved, provided Form 2553 is filed within 60 days with the ruling attached.
• Key authorities: IRC § 1362(a), (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200650013
Release Date: 12/15/2006

Index Number: 1362.01-03

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Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:3 PLR-156199-05
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Date:
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September 11, 2006

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

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

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

This letter responds to your letter dated September 15, 2005, and perfected November 2, 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 Shareholders has timely filed his 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.

PLR-156199-05
2

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 yearB

(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.

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 conclude that Company has established reasonable cause for failing to make a timely S corporation election and is eligible for relief under § 1362(b)(5). Accordingly, we rule that Company's election under ' 1362(a) 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.

PLR-156199-05
3

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/

CHRISTINE ELLISON
Chief, Branch 3
Office of Associate Chief Counsel
(Passthroughs and Special Industries)

enclosures: copy of this letter copy for ' 6110 purposes

cc: