PLR 200712025: Corporation's late S election treated as timely

Plain-English summary

A shareholder intended a newly formed corporation to be an S corporation from its incorporation date, but the company inadvertently failed to file Form 2553. The IRS ruled that the late S election would be treated as timely for the tax year beginning on that date. The relief requires the corporation to file Form 1120S, the shareholder to amend the corresponding individual return and report S corporation items consistently, and the company to file Form 2553 within 60 days of the letter. The IRS did not decide whether the corporation otherwise meets the requirements for S status.

Ruling snapshot

• Question: Can the corporation's late S election take effect from its first tax year?
• Outcome: Approved, subject to return filing, shareholder reporting, and a timely Form 2553.
• Key authorities: IRC §§ 1362(b)(5), 1366, 1367, 1368.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200712025
Third Party Communication: None
Release Date: 3/23/2007
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:3
PLR-139371-06
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Date:
December 19, 2006

Company: -----------------------
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Shareholder: -------------------------
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State: -----------

a: ------------------

b: --------------------------

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

This letter responds to your letter dated June 20, 2006, as well as subsequent correspondence, requesting a ruling under ' 1362(b)(5) of the Internal Revenue Code that Company's late election under ' 1362(a) to be an S corporation will be treated as timely made.

FACTS

Company was incorporated under the laws of State on a, and Shareholder intended Company to be an S corporation that date. However, Company inadvertently failed to file Form 2553 (Election by a Small Business Corporation).

LAW AND ANALYSIS

Section 1362(b)(1) provides, in general, that an election by a small business corporation under ' 1362(a) to be an S corporation may be made for any tax year (A) at

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any time during the preceding tax year, or (B) at any time during the tax year and on or before the 15th day of the 3d month of the tax year.

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

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

CONCLUSION

Based on the facts and representations submitted, we rule that Company's election under ' 1362(a) is to be treated under ' 1362(b)(5) as filed timely for its tax year beginning a. As conditions for this ruling–

1) Company must file Form 1120S (U.S. Income Tax Return for an S Corporation) for its tax year ending b, and Shareholder must file an amended Form 1040 for the same year. For all relevant years, Shareholder must include the separately and nonseparately computed items attributable to his shares in his income as provided in ' 1366, make adjustments to the stock basis of those shares as provided in ' 1367, and take into account any distributions with respect to those shares as provided in ' 1368.

2) Company must file Form 2553, to be effective on a, with the appropriate service center no later than 60 days from the date of this letter. A copy of this letter should be attached to the Form 2553.

Except for the specific ruling above, we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the Code. Specifically, we express or imply no opinion as to whether Company otherwise is eligible to be an S corporation.

Under a power of attorney on file with this office, we are sending a copy of this letter to your authorized representative.

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This ruling is directed only to the taxpayer on whose behalf it was requested.
According to ' 6110(k)(3), this ruling may not be used or cited as precedent.

Sincerely,

/s/

MARY BETH COLLINS
Senior Technician Reviewer, Branch 3
Office of Associate Chief Counsel
(Passthroughs and Special Industries)

enclosures: copy of this letter copy for ' 6110 purposes