PLR 200705011: Late S election may take effect from incorporation

Plain-English summary

A corporation intended to elect S status from its incorporation date but did not timely file Form 2553. It represented that it had acted consistently with that intended status. The IRS found reasonable cause for the missed deadline and granted relief under section 1362(b)(5). A completed Form 2553 effective on the incorporation date must be filed within 60 days of the ruling, with the ruling attached. The IRS did not determine whether the corporation otherwise met the S corporation eligibility requirements.

Ruling snapshot

• Question: Can an untimely S election be treated as effective from incorporation?
• 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: 200705011
Third Party Communication: None
Release Date: 2/2/2007
Date of Communication: Not Applicable
Index Number: 1362.00-00, 1362.01-00,
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
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PLR-128484-06
Date: October 23, 2006

X = ------------------------------------------------------------------------------------------------------
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A = ------------------------------------------------------------------------------------------------------
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B = ------------------------------------------------------------------------------------------------------
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C = ------------------------------------------------------------------------------------------------------
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D = ------------------------------------------------------------------------------------------------------
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E = ------------------------------------------------------------------------------------------------------
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State = ------------
d1 = -------------------

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

We received your letter dated March 1, 2006, and other correspondence, submitted on behalf of X by X’s authorized representative, requesting a ruling under section 1362(b)(5) of the Internal Revenue Code. This letter responds to that request.

Facts

X was incorporated under the laws of State on d1. X represents it intended to be an S corporation as of d1. However, X’s Form 2553, Election by a Small Business Corporation, was not filed timely. X represents that X has acted consistently with X’s intended status as an S corporation. X requests a ruling that it will be recognized as an S corporation effective d1.
PLR-128484-06
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Law and Analysis

Section 1362(a)(1) provides, in general, that except as provided in §1362(g), a small business corporation may elect, in accordance with the provisions of §1362, to be an S corporation.

Section 1362(b)(1) provides that, in general, an election under §1362(a) may be made by a small business corporation for any taxable year (A) at any time during the preceding taxable year, or (B) at any time during the taxable year and on or before the 15th day of the third month of the taxable year.

Section 1362(b)(3) provides that if (A) a small business corporation makes an election under section 1362(a) for any taxable year, and (B) such election is made after the 15th day of the third month of the following taxable year, then such election shall be treated as made for the following taxable year.

Section 1362(b)(5) provides that if an election under section 1362(a) is made for any taxable year (determined without regard to section 1362(b)(3)), after the date prescribed by section 1362(b) for making the election for the taxable year or no section 1362(a) election is made for any taxable year, and the Secretary determines that there was reasonable cause for the failure to make the election, then the Secretary may treat the election as timely made for the taxable year (and section 1362(b)(3) shall not apply.)

Conclusion

Based solely 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 section 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 d1, within 60 days following the date of this letter, we rule that the election shall be treated as timely made. A copy of this letter should be attached to Form 2553.

Except for the specific ruling above, no opinion is expressed or implied concerning the federal tax consequences of the facts of this case under any other provision of the Code. Specifically, no opinion is expressed or implied regarding as to whether X otherwise qualifies as a subchapter S corporation under section 1361.

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 requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.
PLR-128484-06
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The rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination.

Sincerely,

/s/

Christine Ellison
Chief, Branch 3
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

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

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