PLR 200704014: Corporation receives late S election relief from incorporation

Plain-English summary

A shareholder intended a corporation to elect S treatment from its incorporation date but missed the filing deadline. The IRS found reasonable cause and granted relief under section 1362(b)(5). If the corporation otherwise qualifies, it will be treated as an S corporation from incorporation. A completed Form 2553 with the letter attached must be submitted within 60 days, and the ruling does not establish the corporation's other eligibility requirements.

Ruling snapshot

• Question: May the missed S election be effective from the corporation's incorporation date?
• Outcome: Approved, with Form 2553 due within 60 days.
• Key authorities: IRC § 1362(a) and (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200704014
Third Party Communication: None
Release Date: 1/26/2007
Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
-------------------------------------- -------------------, ID No. -------------
-----------------------------
Telephone Number:
------------------------------
---------------------
--------------------------------
Refer Reply To:
CC:PSI:B01
PLR-125380-06
-
Date: September 2 5, 2006

Legend:

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

State = --------

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

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

This responds to the letter dated May 8, 2006, submitted on behalf of X, requesting relief under ' 1362(b)(5) of the Internal Revenue Code.

Facts

According to the information submitted, X was incorporated on D1 under the laws of State. The shareholder of X intended that X be treated as an S corporation effective on D1, but the election to be treated as an S corporation was not timely filed. Accordingly, X requests a ruling that it will be treated as an S corporation effective D1.

Law and Analysis

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.
Section 1362(b)(2) provides in relevant part that 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. Under ' 1362(b)(3), however, if an S election is made after the first two and one-half months of
PLR-125380-06
2

a corporation's taxable year, then that corporation will not be treated as an S corporation until the taxable year after the year in which the S election is filed.

Section 1362(b)(5) provides that if (1) 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 such election, then the Secretary may treat such an election as timely made for such taxable year and ' 1362(b)(3) shall not apply.

X did not timely file an election to be treated as an S corporation under ' 1362(a).
X has, however, established reasonable cause for not making a timely S election and is entitled to relief under ' 1362(b)(5).

Conclusion

Based solely on the facts submitted and the representations made, and provided that X otherwise qualifies as an S corporation, we conclude that X will be treated as an S corporation effective D1. Within 60 days from the date of this letter, X should submit a properly completed Form 2553, with a copy of this letter attached, to the appropriate service center.

Except as specifically set forth above, no opinion is expressed or implied as to the federal tax consequences of the facts 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) 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 will be sent to X’s authorized representative.

Sincerely,

Dianna K. Miosi
Chief, Branch 1
Office of Associate Chief Counsel
(Passthroughs and Special Industries)

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