PLR 200718022: Corporation granted relief for late S election

Plain-English summary

A corporation’s shareholders intended S corporation status from a specified date, but its Form 2553 was not filed on time. The IRS found reasonable cause for the missed deadline and granted late election relief. The election would be treated as timely if the corporation filed a completed Form 2553, effective from the intended date, with a copy of the ruling within 60 days. The IRS did not decide whether the corporation otherwise met the requirements for S corporation status.

Ruling snapshot

• Question: Could the missed Form 2553 deadline be excused for the intended S corporation effective date?
• 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: 200718022
Third Party Communication: None
Release Date: 5/4/2007
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:
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CC:PSI:B03
PLR-149557-06
Date: January 23, 2007
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LEGEND

X = -------------------------
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Shareholders
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Date1 = --------------

Date2 = ----------------------

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

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

PLR-149557-06
2

This letter responds to a letter dated October 11, 2006, and subsequent correspondence written on behalf on X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

Facts

X was incorporated under State law in Date1. X’s Shareholders intended for X to be an S corporation effective Date2. However, X’s Form 2553, Election by a Small Business Corporation, was not filed timely.

X requests a ruling that it will be treated as an S corporation effective Date2.

Law and Analysis

Section 1362(a)(1) provides that a small business corporation may elect to be an S corporation.

Section 1362(b)(1) provides that an election may be made by a small business corporation for any taxable year at any time during the preceding taxable year, or 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 an election made after the 15th day of the third month of the taxable year and on or before the 15th day of the third month of the following taxable year is treated as having been made for the following taxable year.

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

Conclusion

Based on the facts submitted and representations made, we conclude that X has established reasonable cause for failing to make an S corporation election. Thus, we conclude that X is eligible for relief under § 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 Date2, within 60 days following the date of this letter, the election shall be treated as timely made. A copy of this letter should be attached to the election.

PLR-149557-06
3

Except as expressly provided herein, we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter. Specifically, we express or imply no opinion concerning whether X is otherwise eligible to be an S corporation for federal tax purposes.

Under a power of attorney on file with this office, a copy of this letter is being sent to your authorized representative.

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

Sincerely,

/s/

Mary Beth Collins
Senior Technician Reviewer, Branch 3
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

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