PLR 200745010: Late S corporation election accepted for initial year

Plain-English summary

A corporation intended to elect S corporation status from its incorporation date but did not file the election on time. The IRS found reasonable cause for the delay and allowed the election to take effect for the corporation's initial tax year if it filed the completed election within 60 days of the ruling. The IRS did not decide whether the corporation otherwise met the requirements to qualify as an S corporation.

Ruling snapshot

• Question: Could a missed S corporation election deadline be excused?
• Outcome: Yes, if the corporation filed the election 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: 200745010
Third Party Communication: None
Release Date: 11/9/2007
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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In Re: Date:
--------------------------------------------------- July 27, 2007
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X = --------------------------------------------------------------
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State = ---------------------
Date 1 = ----------------------

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

This responds to a letter dated February 22, 2007, submitted on behalf of X by X’s authorized representative, requesting relief under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated on Date 1 under the laws of State. It was intended for X to be an S corporation effective Date 1. However, no Form 2553, Election by a Small Business Corporation, was timely filed for X.

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

Section 1362(b) provides the rule on when an S election will be effective.
Generally, 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. Section 1362(b)(3) provides that if an S 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: (1) an election under § 1362(a) is made for any taxable year after the date prescribed by § 1362(b) for making such election for
PLR-114238-07
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such taxable year or no such election is made for any taxable year, and (2) the Secretary determines that there was reasonable cause for the failure to timely make such election, then the Secretary may treat such an election as timely made for such taxable year.

Based solely on the facts and the representations submitted, we conclude that X has established reasonable cause for failing to make a timely election to be an S corporation effective Date 1. Accordingly, provided that X makes an election be an S corporation by filing a completed Form 2533 with the appropriate service center effective Date 1 within 60 days following the date of this letter, then such election will be treated as timely made for X’s taxable year beginning Date 1. A copy of this letter should be attached to the Form 2553.

Except as specifically set forth above, no opinion is expressed concerning the federal income tax consequences of the facts described above under any other provision of the Code, including whether X was or is a small business corporation under § 1361(b) of the Code.

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.

Pursuant to a power of attorney on file with this office, a copy of this letter is being sent to X’s authorized representative.

Sincerely,

J. Thomas Hines
Chief, Branch 2
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures (2):
Copy of this letter
Copy for section 6110 purposes

cc: