PLR 200752001: Late S election can take effect from intended date

Plain-English summary

A corporation's sole shareholder intended S corporation status from a specified date, but the company's Form 2553 was not filed on time. Both the company and shareholder represented that they had reported income consistently with S corporation status. The IRS found reasonable cause for the late filing and ruled that the election would be timely if the company files a completed Form 2553 within 60 days of the letter. The ruling does not decide whether the company otherwise qualifies as an S corporation.

Ruling snapshot

• Question: Can the corporation make an S election effective from the date originally intended despite filing late?
• Outcome: Approved, subject to filing Form 2553 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: 200752001
Third Party Communication: None
Release Date: 12/28/2007
Date of Communication: Not Applicable

Person To Contact:
Index Number: 1362.01-03
----------------------, ID No. -------------
Telephone Number:
-----------------
--------------------------------
Refer Reply To:
------------------------------
CC:PSI:B03
--------------------------------------------- PLR-103691-07 Date:
September 18, 2007

Legend

X = -----------------
----------------------

A = --------------------
-------------------------

d1 = --------------------------

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

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

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

This letter responds to a letter dated January 15, 2006, written on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

Facts

X was incorporated under the laws of State on d1. A, X’s sole shareholder, represents that he 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.
PLR-103691-07
2

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 d2.

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, in general, 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 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 solely 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, we rule that the 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.
PLR-103691-07
3

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.

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.

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.

Sincerely,

/s/

Leslie H. Finlow
Acting 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

cc: