PLR 200721008: Late S corporation election treated as timely

Plain-English summary

A corporation's shareholders intended to elect S corporation status from a specified date, but the corporation inadvertently missed the Form 2553 filing deadline. The IRS found reasonable cause for the late election under § 1362(b)(5). If the corporation files a completed Form 2553 with the ruling attached within 60 days, the election will be treated as timely for the requested effective date. The IRS did not decide whether the corporation otherwise qualifies as an S corporation.

Ruling snapshot

• Question: Can the missed S corporation election deadline be excused for the requested effective date?
• Outcome: Approved, subject to filing Form 2553 with the ruling within 60 days.
• Key authorities: IRC § 1362(a), (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200721008
Third Party Communication: None
Release Date: 5/25/2007
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:B1
PLR-151971-06
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Date: February 15, 2007

Legend:

A = -----------------------------
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X = ------------------------------------
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Date 1 = --------------------------

Date 2 = ----------------------

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

This responds to a letter dated October 30, 2006, submitted on behalf of X, requesting relief under ' 1362(b)(5) of the Internal Revenue Code.

Facts

The material submitted states that X was incorporated on Date 1. A, the president of X, represents that the shareholders of X intended that X elect to be an S corporation effective Date 2. However, X inadvertently failed to timely file a Form 2553, Election by a Small Business Corporation. X requests a ruling that it will be an S corporation effective Date 2.

Law and Analysis

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

2

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Section 1362(b) provides the rule on when an S election will be effective.
Section 1362(b)(2) provides in relevant part 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 corporation's taxable year, then that corporation will not be treated as an S corporation until the taxable year after the year in which the S election is filed.

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

X did not timely file an election to be an S corporation under ' 1362(a). X has, however, established reasonable cause for not making a timely S election and is entitled to relief under ' 1362(b)(5).

Conclusion

Based solely on the facts submitted and the representations made we conclude that X has established reasonable cause for failing to make a timely election to be an S corporation effective Date 2. Accordingly, provided that X makes an election to be an S Corporation by filing a properly completed Form 2553 effective Date 2, along with a copy of this letter, with the appropriate service center within 60 days from the date of this letter, then such an election will be treated as timely made for Date 2.

Except as specifically set forth above, no opinion is expressed or implied as to the federal income tax consequences of the transaction described above under any other provision of the Code. Specifically, no opinion is expressed concerning whether X was or is, in fact, an S corporation for federal tax purposes.

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

Sincerely,

Audrey W. Ellis
Senior Counsel, Branch 1
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

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