PLR 200802019: Corporation receives relief for a late S election

Plain-English summary

A corporation's shareholder intended S corporation treatment from the date of incorporation, but the election was filed late. The IRS found reasonable cause for the missed deadline and granted relief under § 1362(b)(5). The corporation would be treated as an S corporation from its incorporation date if it otherwise qualified. It had to submit a completed Form 2553 within 60 days of the ruling. The IRS did not decide whether the corporation actually met every S corporation requirement.

Ruling snapshot

• Question: Could a late S election take effect on the corporation's incorporation date?
• Outcome: Approved conditionally: the election may take effect on that date if the corporation otherwise qualifies and files the form as directed.
• Key authorities: IRC § 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200802019
Third Party Communication: None
Release Date: 1/11/2008
Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:B1
PLR-138839-07
Date: October 10, 2007

Legend:

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

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

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

This letter responds to your letter dated August 24, 2007, submitted on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

Facts

The information submitted states that X was incorporated on Date 1 under the laws of State. The shareholder of X intended that X be treated as an S corporation effective Date 1 but the election to be treated as an S corporation as of Date 1 was not timely filed.

Law and Analysis

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. Section 1362(b)(2) provides in relevant part that 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

PLR-138839-07
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an S Corporation for the year in which the election is made. Under § 1362(b)(3), however, if an S election is made after the first two and one-half months of a corporation’s taxable year, then that corporation will not be treated as an S corporation until the taxable year after the year in which the S election is filed.

Section 1362(b)(5) provides that if: (1) no § 1362(a) 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 and § 1362(b)(3) shall not apply.

X did not timely file an election to be treated as an S Corporation under § 1362(a) as of Date 1. X has, however, established reasonable cause for not making a timely S election and is entitled to relief under § 1362(b)(5).

Conclusion

Based solely on the facts submitted and the representations made, and provided that X otherwise qualifies as an S Corporation, we conclude that X will be treated as an S Corporation effective Date 1. Within 60 days from the date of this letter X should submit a properly completed Form 2553 effective Date 1, with a copy of this letter attached, to the relevant service center.

Except as specifically set forth above, no opinion is expressed or implied as to the federal income tax consequences of the transaction described above under any other provision of the Code. Specifically, no opinion is expressed concerning whether X is, in fact, an S Corporation for federal tax purposes.

This ruling is directed only to the taxpayer(s) requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

In accordance with the power of attorney on file with this office, a copy of this letter will be sent to your authorized representative.

Sincerely,

Dianna K. Miosi
Chief, Branch 1
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosures (2)
Copy of this letter
Copy for § 6110 purposes