PLR 200701015: LLC permitted to make its intended S election late

Plain-English summary

A limited liability company intended to elect S-corporation treatment from a specified date but failed to file Form 2553 on time. The IRS found reasonable cause for the failure under section 1362(b)(5). It allowed the intended effective date if the company files a completed Form 2553 within 60 days of the ruling letter. The company must attach the letter to its election. Relief addresses the filing deadline and does not determine whether the company otherwise qualifies as an S corporation.

Ruling snapshot

• Question: Can the LLC’s missed S election retain its intended effective date?
• Outcome: Approved if a completed Form 2553 is filed within 60 days.
• Key authorities: IRC §§ 1362(a), 1362(b)(3), 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200701015
Third Party Communication: None
Release Date: 1/5/2007
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:B02

• PLR-128330-06
  Date:
  October 02, 2006
  -

X = ------------------------------------------------------------------------------------------------------
------------------------

State = --------

D1 = -----------------

D2 = --------------------

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

This responds to a letter dated May 24, 2006 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 is a limited liability company organized pursuant to the laws of State on D1. It was intended that X elect S corporation treatment effective on D2; however, Form 2553, Election by a Small Business Corporation, was not timely filed for X.

Section 1362(a) provides that a small business corporation may elect to be an S corporation.

Section 1362(b) provides the rule on when an S election will be effective. Generally, if an S election is made within the first two and one-half months of a corporation's taxable year, then the corporation will be treated as an S corporation for the year in which the election is made. Section 1362(b)(3) provides that if an S election is made after the first two and one-half months of a corporation's taxable year, then the corporation will not be

PLR-128330-06
2

treated as an S corporation until the taxable year after the year in which the S election is made.

Section 1362(b)(5) provides that if (1) an election under § 1362(a) is made for any taxable year 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 (2) the Secretary determines that there was reasonable cause for the failure to timely make the election, then the Secretary may treat the election as timely made for such taxable year and § 1362(b)(3) shall not apply.

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 or implied as to the federal income tax consequences of the transaction described above under any other provision of the Code. Specifically, no opinion is expressed concerning whether X is, in fact, an S corporation for federal tax purposes.

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

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

Sincerely,

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

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

cc: