PLR 200722017: Sole shareholder's late S corporation election may be filed

Plain-English summary

A corporation's sole shareholder intended S corporation treatment from incorporation, but Form 2553 was not filed on time. The IRS found reasonable cause for the delay under § 1362(b)(5). It ruled that the election would be treated as timely for the requested date if the corporation files a completed Form 2553 with a copy of the letter within 60 days of the ruling date. The IRS did not decide whether the corporation otherwise meets the requirements for S corporation status.

Ruling snapshot

• Question: Could the corporation make its intended S election after the deadline?
• Outcome: Yes, if it files 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: 200722017
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:B01
PLR-148188-06
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Date: February 22, 2007

Legend:

X = ---------------------------------------------
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D1 = ------------------------

A = ------------------------

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

This responds to the letter dated October 3, 2006 and subsequent correspondence, submitted on behalf of X, requesting relief under § 1362(b)(5) of the Internal Revenue Code.

Facts

The information submitted states that X was incorporated on D1. A, the sole shareholder of X, represents that he intended that X elect to be an S corporation effective D1. However, X inadvertently failed to timely file a Form 2553, Election by a Small Business Corporation. Accordingly, X requests a ruling that it will be treated as an S corporation effective D1.

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
PLR-148188-06
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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 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 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 and 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 or implied as to the federal tax consequences of the facts 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 requesting it. Section 6110(k)(3) provides that it may not be used or cited as precedent.

Sincerely,

Audrey Ellis
Senior Counsel, Branch 1
Office of Associate Chief Counsel
(Passthroughs and Special Industries)

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