PLR 200705008: Reasonable cause permits late S election on intended date

Plain-English summary

A corporation intended to elect S status on a specified date but missed the election deadline. The IRS found reasonable cause for that failure and granted relief under section 1362(b)(5). The corporation would be recognized as an S corporation from its intended effective date if it otherwise qualified and filed a properly completed Form 2553 within 60 days. A copy of the ruling must accompany the form. The IRS did not independently determine that the corporation met the other S corporation requirements.

Ruling snapshot

• Question: Can a missed S election deadline be excused for reasonable cause?
• Outcome: Approved, conditioned on eligibility and filing Form 2553 within 60 days.
• Key authorities: IRC §§ 1362(a), 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200705008
Third Party Communication: None
Release Date: 2/2/2007
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:B01
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PLR-123804-06
Date:
September 05, 2006
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LEGEND

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

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

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

Dear ----------------------

This responds to a letter dated April 25, 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. X intended to be treated as an S corporation for Federal tax purposes effective D2, but the election was not timely filed.

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 for when an S election will be effective.

Section 1362(b)(2) provides 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
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corporation for the year in which the election is made. If the election is made after the first two and one-half months of a corporation's taxable year, then the corporation will not be 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 no election is made pursuant to section 1362(a), or, if made, the election is made after the date prescribed for making such an election, and the Secretary determines there was reasonable cause for the failure to timely make the election, then the Secretary may treat such election as timely made for such taxable year and effective as of the first day of that year.

X did not file a timely election to be treated as an S corporation under section 1362(a) effective D2. X has, however, established reasonable cause for not making a timely election and is entitled to relief under section 1362(b)(5).

CONCLUSION

Based solely on the facts submitted and representations made, and provided that X otherwise qualifies as a subchapter S corporation, and that within 60 days from the date of this letter, X submits a properly completed Form 2553, with a copy of this letter attached, to the appropriate service center, we conclude that X will be recognized as an S corporation effective D2.

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. Specifically, no opinion is expressed or implied 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.

Sincerely,

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

Enclosures (2)
Copy of this letter
Copy of this letter for section 6110 purposes
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cc: -----------------------
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