PLR 200716001: Corporation may file late S election for intended effective date

Plain-English summary

A corporation intended to elect S corporation treatment but did not file Form 2553 on time. The IRS found reasonable cause for the late filing under section 1362(b)(5). It ruled that an election filed within 60 days of the letter, with the intended effective date and a copy of the ruling, would be treated as timely. The public copy redacts the corporation's formation and intended election dates. The IRS did not decide whether the corporation otherwise met the eligibility requirements for an S corporation.

Ruling snapshot

• Question: Could the corporation's late S election take effect on its intended date?
• Outcome: Approved, if Form 2553 was filed within 60 days as directed.
• Key authorities: IRC §§ 1362(b)(5), 1361(b).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200716001
Release Date: 4/20/2007
Index Number: 1362.01-03

• Person To Contact:
  ------------------------ ------------------------------- --------- ------------
  ------------- ---------
  ---------------------- Telephone Number:
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  ----------------------------- Refer Reply To:
  CC:PSI:2
  PLR-101576-06
  Date:
  December 06, 2006

LEGEND:

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

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

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

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

This responds to a letter dated November 30, 2005, submitted on behalf of X by its authorized representative, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

X represents that X was incorporated on D1 and intended to be an S corporation effective D2. However, no Form 2553, Election by a Small Business Corporation, was timely filed for X.

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 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 a

PLR-101576-06
2

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

Section 1362(b)(5) of the Code 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, the Secretary may treat such an election as timely made for such taxable year and § 1362(b)(3) shall not apply.

Based solely on the facts and representations submitted, we conclude that X has established reasonable cause for failing to make a timely election to be an S corporation effective D2. Accordingly, provided that X makes an election to be an S corporation by filing a completed Form 2553 effective D2, along with a copy of this letter, with the appropriate service center within 60 days from the date of this letter, then such election will be treated as timely made for D2.

Except as specifically set forth above, no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the Code, including whether X was or is a small business corporation under § 1361(b) of the Code.

This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

Pursuant to a power of attorney on file with this office, a copy of this letter is being forwarded to X's authorized representative.

Sincerely,

Beverly Katz
Senior Technician Reviewer, Branch 2
Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosures: 2
Copy of this letter
Copy for § 6110 purposes