PLR 200722003: Late S corporation election accepted for requested year

Plain-English summary

A newly incorporated company wanted S corporation treatment beginning on a specified date, but missed the deadline for making the election. The IRS found reasonable cause for the late filing under § 1362(b)(5). It ruled that the company would be treated as an S corporation from its requested effective date if it otherwise qualified, and instructed it to submit Form 2553 within 60 days with a copy of the ruling. The IRS did not decide whether the company actually met all S corporation requirements.

Ruling snapshot

• Question: Can the company make its S corporation election effective on the originally requested date despite filing late?
• Outcome: Yes, subject to otherwise qualifying and submitting Form 2553 within 60 days.
• Key authorities: IRC § 1362(a), (b)(2), (b)(3), (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200722003
Third Party Communication: None
Release Date: 6/1/2007
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
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Date: February 16, 2007

Legend:

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

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

State = ---------

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

This responds to a letter dated January 9, 2007 submitted on behalf of X, requesting relief under § 1362(b)(5) of the Internal Revenue Code.

Facts

X was incorporated on Date 1 under the laws of State. The shareholders of X desired that X elect S corporation treatment effective on Date 2, but the election to be treated as an S corporation was not timely filed. Accordingly, X requests a ruling that it will be treated as 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.

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

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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 made.

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 treated as 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, and provided that X otherwise qualifies as an S corporation, we conclude that X will be treated as an S corporation effective Date 2. Within 60 days from the date of this letter X should submit a properly completed Form 2553 effective Date 2, with a copy of this letter attached, to the relevant service center.

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 is, in fact, an S corporation for federal tax purposes.

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.

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In accordance with the Power of Attorney on file with this office, a copy of this letter is being mailed to your authorized representative.

Sincerely,

David R. Haglund
Senior Technician Reviewer, Branch 1
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

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