PLR 200737033: Corporation may file late S election for intended start date

Plain-English summary

A corporation's sole shareholder intended S corporation treatment from the date of incorporation, but the corporation did not file Form 2553 on time. Both the corporation and shareholder represented that they had reported income consistently with that intended status. The IRS found reasonable cause for the missed election and allowed the requested effective date if the corporation filed a completed Form 2553 within 60 days of the letter. The letter did not decide whether the corporation otherwise qualified for S corporation status.

Ruling snapshot

• Question: Could a late S corporation election be treated as timely from the date of incorporation?
• Outcome: Approved, if Form 2553 was filed within 60 days.
• Key authorities: IRC §§ 1361, 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200737033
Third Party Communication: None
Release Date: 9/14/2007
Date of Communication: Not Applicable
Index Number: 1362.00-00, 1362.01-00,
1362.01-03
Person To Contact:
-----------------------, ID No. ------------- ----------------------------- -------------- Telephone Number:
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Refer Reply To:
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CC:PSI:B03
PLR-115206-07
Date: June 11, 2007

X = -----------------------------------------------------------------------------------------------------
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A = -----------------------------------------------------------------------------------------------------
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State = ---------

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

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

We received the letter dated November 8, 2006, and subsequent correspondence, submitted on behalf of X by X’s authorized representative, requesting a ruling under
§ 1362(b)(5) of the Internal Revenue Code. This letter responds to your request.

Facts

X was incorporated under the laws of State on Date 1. A, X’s sole shareholder, represents that it was A’s intent for X to be an S corporation as of Date 1. However, X’s Form 2553, Election by a Small Business Corporation, was not timely filed.

X represents that both X and its sole shareholder A have reported their income consistent with X’s intended status as an S corporation. X requests a ruling that it will be recognized as an S corporation effective Date 1.
PLR-115206-07
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Law and Analysis

Section 1362(a)(1) provides 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 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.

Section 1362(b)(3) provides that if (A) a small business corporation makes an election under § 1362(a) for any taxable year, and (B) 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 (A) 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 (B) the Secretary determines that there was reasonable cause for the failure to timely make the election, the Secretary may treat the election as timely made for the taxable year (and § 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 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 1 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 as to whether X otherwise qualifies as a subchapter S corporation under § 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-115206-07
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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/

Leslie H. Finlow
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