PLR 200736021: Late S corporation election accepted for reasonable cause

Plain-English summary

A limited liability company intended to be taxed as an S corporation but inadvertently missed the deadline to file Form 2553. The IRS found reasonable cause for the late election under section 1362(b)(5). It would treat the election as timely for the requested effective date if the company filed a completed Form 2553 with a copy of the ruling at the appropriate service center within 60 days of the letter.

Ruling snapshot

• Question: Could the company obtain relief for a late S corporation election?
• Outcome: Approved, provided it filed Form 2553 and the ruling 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: 200736021
Third Party Communication: None
Release Date: 9/7/2007
Date of Communication: Not Applicable

Person To Contact:
Index Number: 1362.01-03
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Telephone Number:
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------------------------------------------- Refer Reply To:
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PLR-156940-06
Date:
June 01, 2007

Legend:

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

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

D2 = --------------------------

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

This responds to the letter dated August 15, 2006, and related correspondence, submitted on behalf of X, requesting relief under ' 1362(b)(5) of the Internal Revenue Code.

FACTS

X was organized as a limited liability company on D1 under the laws of State. X intended to be treated as an S corporation for federal tax purposes. However, X inadvertently failed to timely file a Form 2553, Election by a Small Business Corporation, effective D2.

LAW AND ANALYSIS

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

PLR-156940-06
2

Section 1362(b) provides the rule on when an S election will be effective. 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. If the election is made after the first two and one-half months of a corporation=s taxable year, then the 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 no election is made pursuant to ' 1362(a), or, if made, the election is made after the date prescribed for making such an election, and the Secretary determines there was reasonable cause for the failure to timely make the election, then the Secretary may treat such an election as timely made for such taxable year and effective as of the first day of that tax year.

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 D2. Accordingly, provided that X makes an election to be an S corporation by filing a completed Form 2553 effective D2, 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 D2.

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter.

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.

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

Enclosures (2)

Copy of this letter
Copy for ' 6110 purposes

cc: