PLR 200703029: Late S corporation election receives reasonable-cause relief

Plain-English summary

A corporation's sole shareholder intended S corporation treatment from the date operations began, but the election form was not filed on time. The IRS found reasonable cause for the missed deadline and granted relief under section 1362(b)(5). The corporation had 60 days from the letter's date to file a completed Form 2553 for the intended effective date. The IRS did not decide whether the corporation otherwise met the requirements for S status.

Ruling snapshot

• Question: May the corporation make a retroactive S election despite filing late?
• Outcome: Approved, conditioned on filing Form 2553 within 60 days.
• Key authorities: IRC § 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200703029
Third Party Communication: None
Release Date: 1/19/2007
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:
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CC:PSI:B03
PLR-140875-06

Date: October 5, 2006

Legend

X = -------------------------
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A = -----------------
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D1 = --------------------------

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

State = ----------

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

This letter responds to a letter dated July 7, 2006, written on behalf on X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

Facts

X was incorporated under State law on D1 and began operations on D2. X’s sole shareholder, A, intended for X to be an S corporation effective D2. However, X’s Form 2553, Election by a Small Business Corporation, was not filed timely.

X requests a ruling that it may elect to be treated as an S corporation effective for the taxable year beginning D2.
PLR-140875-06
2

Law and Analysis

Section 1362(a)(1) provides that a small business corporation may elect to be an S corporation.

Section 1362(b)(1) provides that the election may be made for the current taxable year if it is made during the preceding taxable year or at any time during the current taxable year and on or before the 15th day of the third month of the current taxable year. Section 1362(b)(3) provides that an election made after the 15th day of the third month of the current taxable year and on or before the 15th day of the third month of the following taxable year shall be treated as having been made for the following taxable year.

Section 1362(b)(5) provides that if an election under § 1362(a) is made for any taxable year (determined without regard to § 1362(b)(3)), 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 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 the taxable year and § 1362(b)(3) shall not apply.

Conclusion

Based on the facts submitted and representations made, we conclude that X has established reasonable cause for failing to make a timely S corporation election. Thus, we conclude that X is eligible for relief under § 1362(b)(5). Accordingly, if X makes an election to be an S corporation by filing with the appropriate service center a completed Form 2553 effective D2, within 60 days following the date of this letter, the election shall be treated as timely made.

Except as expressly provided herein, we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter. Specifically, we express or imply no opinion concerning whether X is otherwise eligible to be an S corporation for federal tax purposes.
PLR-140875-06
3

In accordance with a power of attorney on file with this office, a copy of this letter is being sent to your authorized representative.

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,

/s/

James A. Quinn
Senior Counsel, Branch 3
Office of Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosures (2)
A copy of this letter
A copy for § 6110 purposes

cc: