PLR 200742018: Late S corporation election accepted with timely filing

Plain-English summary

A corporation's sole shareholder intended it to be an S corporation, but its Form 2553 election was not filed by the deadline. The IRS found reasonable cause for the delay and granted relief under section 1362(b)(5). It would treat the election as timely for the requested effective date if the corporation filed a completed Form 2553 within 60 days of the ruling. The IRS did not decide whether the corporation otherwise qualified for S corporation status.

Ruling snapshot

• Question: Could the corporation's late S election take effect on the date it originally intended?
• Outcome: Yes, if it filed Form 2553 within 60 days of the letter.
• Key authorities: IRC § 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200742018
Third Party Communication: None
Release Date: 10/19/2007
Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
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----------------------------------------- Refer Reply To:
CC:PSI:B03
PLR-154286-06
Date:
July 6, 2007

LEGEND:

X = --------------------------------------
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A = ------------------------
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d1 = ----------------------

d2 = ----------------------

State = ---------

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

This letter responds to a letter dated November 13, 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 d1. X’s sole shareholder A, intended for X to be an S corporation as of d2. However, X’s Form 2553, Election by a Small Business Corporation, was not filed timely.

X requests a ruling that it will be recognized as an S corporation effective d2.
PLR-154286-06
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Law and Analysis

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 is 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 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 in a timely manner. 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 with an effective date of d2, within 60 days following the date of this letter, then such election shall be treated as timely made. A copy of this letter should be attached to the Form 2553 filed with the service center. A copy is enclosed for that purpose.

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 X’s authorized representative.
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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,

/s/

Mary Beth Collins
Senior Technician Reviewer, Branch 3
Office of Associate Chief Counsel
(Passthroughs & Special Industries)

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