PLR 200718025: Late S corporation election receives relief

Plain-English summary

A corporation’s sole shareholder intended to elect S corporation status from the date the company was incorporated, but Form 2553 was not filed on time. The IRS found reasonable cause for the missed deadline based on the submitted facts. It ruled that the election would be treated as timely if the corporation filed a completed Form 2553 with a copy of the ruling within 60 days. The IRS did not decide whether the corporation otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Could the corporation’s late S election take effect from its incorporation date?
• Outcome: Approved, subject to 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: 200718025
Release Date: 5/4/2007
Index Number: 1362.01-03

Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:2
PLR-154140-06
Date:
January 23, 2007

Legend

X = -------------------------------------
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A = -------------------------------
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d1 = ----------------------

Dear -----------------------------
This letter responds your letter dated October 30, 2006 and subsequent correspondence, submitted on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated on d1. A, X’s president and sole shareholder, represents that A intended that X elect to be an S corporation effective d1. However, Form 2553, Election by a Small Business Corporation, was not timely filed for X.

Section 1362(b)(5) provides that if -- (A) 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 such election is made for any taxable year, and (B) 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.

2

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 d1. Accordingly, provided that X makes an election to be an S corporation by filing a completed Form 2553 effective d1, 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 d1.

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).

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.

Sincerely,

Bradford R. Poston
Senior Counsel, Branch 2
Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures (2)
Copy of this letter
Copy for § 6110 purposes