PLR 200718015: S election relief granted where filing was missing from IRS records

Plain-English summary

A corporation’s sole shareholder intended S corporation status from the incorporation date, but the IRS service center had no record of a timely Form 2553. The IRS found reasonable cause for the missed election deadline and ruled that an election effective from incorporation would be treated as timely if the corporation filed a completed election with a copy of the letter within 60 days. It did not decide whether the corporation otherwise qualified as a small business corporation. The ruling’s operative sentence prints “Form 2533,” while its facts identify Form 2553 as the S election form.

Ruling snapshot

• Question: Could the corporation obtain relief for its missing timely S election?
• Outcome: Approved, conditioned on filing the election 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: 200718015
Release Date: 5/4/2007
Index Number: 1362.01-03

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Person To Contact:
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Telephone Number:
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Refer Reply To:
CC: PSI: B02
PLR-143498-06
Date:
January 17, 2007

X = ------------------------------------------------------------------------------------------
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State = ------------
Date 1 = ----------------

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

This responds to a letter dated August 30, 2006, and subsequent correspondence, submitted on behalf of X by X’s authorized representative, requesting relief under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated on Date 1 under the laws of State. A, the sole shareholder of X, intended for X to be an S corporation effective Date 1. However, X’s Internal Revenue service center has no record of Form 2553, Election by a Small Business Corporation, being timely filed for X. Accordingly, X requests a ruling that it will be treated as an S corporation effective Date 1.

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.
Generally, 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. Section 1362(b)(3) provides that if an S 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.

PLR-143498-06
2

Section 1362(b)(5) provides that if: (1) an election under § 1362(a) is made for any taxable year after the date prescribed by § 1362(b) for making such election for such taxable year or 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.

Based solely on the facts and the representations submitted, we conclude that X has established reasonable cause for failing to make a timely election to be an S corporation effective Date 1. Accordingly, provided that X makes an election be an S corporation by filing a completed Form 2533 effective Date 1, 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 X’s taxable year beginning Date 1.

Except as specifically set forth above, no opinion is expressed concerning the federal income 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).

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.

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

Sincerely,

J. Thomas Hines
Chief, Branch 2
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

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