PLR 200723016: Late S corporation election accepted if filed within 60 days

Plain-English summary

A corporation's sole shareholder intended the business to be an S corporation, but its Form 2553 election was filed late. The IRS found reasonable cause for the delay and granted relief under § 1362(b)(5). The election will be treated as timely if the corporation files a completed Form 2553 within 60 days of the letter and attaches a copy of the ruling. The IRS did not decide whether the corporation otherwise meets the requirements to be an S corporation.

Ruling snapshot

• Question: Could the corporation's late S election be treated as timely?
• 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: 200723016
Third Party Communication: None
Release Date: 6/8/2007
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:B03
PLR-150502-06
-
Date:
February 28, 2007

Legend

X = --------------------------------.
-----------------------

A = ---------------------------
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Date = -----------------

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

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

This letter responds to a letter dated October 17, 2006, written on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

Facts

X was incorporated under State law on Date. A, X’s sole shareholder, intended for X to be an S corporation effective Date. 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 Date.

Law and Analysis
PLR-150502-06
2

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 under § 1362(a) 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 if a small business corporation makes an election under § 1362(a) for any taxable year, and the election is 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, then the election shall be treated as 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 Date, 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.

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.

In accordance with a power of attorney on file with this office, a copy of this letter is being sent to your authorized representative.
PLR-150502-06
3

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