PLR 200809005: Corporation receives relief for late S election

Plain-English summary

A corporation intended to elect S corporation status when it was formed, but it did not file Form 2553 on time. It asked the IRS to treat the election as timely under section 1362(b)(5). The IRS found reasonable cause for the late filing based on the submitted facts. It ruled that the corporation would be treated as an S corporation from the intended date if it otherwise qualified and filed a completed Form 2553 with a copy of the letter within 60 days. The IRS expressly did not decide whether the corporation met all other S corporation requirements.

Ruling snapshot

• Question: Could the corporation's late S election take effect on its intended date?
• Outcome: Yes, subject to qualification and 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: 200809005
Third Party Communication: None
Release Date: 2/29/2008
Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
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Refer Reply To:
CC:PSI:B03
PLR-129478-07
Date:
November 26, 2007

Legend

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

Date = ------------------

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

This letter responds to a letter dated June 20, 2007, submitted on behalf of X by X’s authorized representative, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

PLR-129478-07
2

Facts

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

X represents that both X and Shareholders 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.

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 such election shall be 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 (A) 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 such 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 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.

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Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. 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.

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

cc: