PLR 200724005: Late S corporation election treated as timely if Form 2553 is filed

Plain-English summary

A corporation intended S corporation status from its incorporation date but did not file Form 2553 on time. It represented that its tax returns had been filed consistently with S corporation status. The IRS found reasonable cause and ruled that the election would be treated as timely if the corporation filed a completed Form 2553 within 60 days of the letter, specifying the intended effective date. The IRS did not decide whether the corporation otherwise qualifies under the S corporation rules.

Ruling snapshot

• Question: Can the corporation's late S election be effective from its incorporation date?
• Outcome: Approved, if Form 2553 is filed within 60 days of the letter.
• Key authorities: IRC §§ 1362(b)(5), 1361

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200724005
Third Party Communication: None
Release Date: 6/15/2007
Date of Communication: Not Applicable
Index Number: 1362.00-00, 1362.01-00,
1362.01-03
Person To Contact:
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Telephone Number:
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Refer Reply To:
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CC:PSI:B03
PLR-134499-06
Date: January 22, 2007
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X = ------------------------------------------------------------------------------------------------------
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A = ------------------------------------------------------------------------------------------------------
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State = ------------------
d1 = ---------------------

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

We received your letter dated June 5, 2006, requesting a ruling on behalf of X under section 1362(b)(5) of the Internal Revenue Code. This letter responds to your request.

Facts

X was incorporated under the laws of State on d1. X represents it intended to be an S corporation as of d1. However, X’s Form 2553, Election by a Small Business Corporation, was not timely filed.

X represents that it filed its tax returns consistent with S corporation status.

Law and Analysis

Section 1362(a)(1) provides, in general, that except as provided in §1362(g), a small business corporation may elect, in accordance with the provisions of §1362, to be an S corporation.

Section 1362(b)(1) provides that, in general, an election under §1362(a) may be made by a small business corporation for any taxable year (A) at any time during the preceding taxable year, or (B) at any time during the taxable year and on or before the 15th day of the third month of the taxable year.

PLR-134499-06
2

Section 1362(b)(3) provides that if (A) a small business corporation makes an election under section 1362(a) for any taxable year, and (B) such election is made after the 15th day of the third month of the following taxable year, then such election shall be treated as made for the following taxable year.

Section 1362(b)(5) provides that if an election under section 1362(a) is made for any taxable year (determined without regard to section 1362(b)(3)), after the date prescribed by section 1362(b) for making the election for the taxable year or no section 1362(a) election is made for any taxable year, and the Secretary determines that there was reasonable cause for the failure to make the election, then the Secretary may treat the election as timely made for the taxable year (and section 1362(b)(3) shall not apply.)

Conclusion

Based solely on the facts submitted and representations made, we conclude that X has established reasonable cause for failing to make a timely S corporation election. Thus, we conclude that X is eligible for relief under section 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 d1, within 60 days following the date of this letter, we rule that the election shall be treated as timely made. A copy of this letter should be attached to Form 2553.

Except for the specific ruling above, no opinion is expressed or implied concerning the federal tax consequences of the facts of this case under any other provision of the Code. Specifically, no opinion is expressed or implied regarding as to whether X otherwise qualifies as a subchapter S corporation under section 1361.

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

PLR-134499-06
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The rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination.

Sincerely,

/s/

Christine Ellison
Chief, Branch 3
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosures (2)
A copy of this letter
A copy for § 6110 purposes