PLR 200809030: 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: 200809030
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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Telephone Number:
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Refer Reply To:
CC:PSI:B02
PLR-126102-07
Date:
November 21, 2007

Legend

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

D1 = -----------------------

Dear --------------------

This responds to a letter dated April 30, 2007, and subsequent correspondence submitted on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated in State on D1. It was intended that X elect S corporation treatment effective D1; however, a Form 2553, Election by a Small Business Corporation, was not 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

PLR-126102-07
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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 the election for the taxable year or 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 the election, then the Secretary may treat the election as timely made for such taxable year and § 1362(b)(3) shall not apply.

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 D1. Provided that X otherwise qualifies as an S corporation, we conclude that X will be treated as an S corporation effective D1, provided that within 60 days from the date of this letter, X submits a properly completed Form 2553, Election by a Small Business Corporation, 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 requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

Sincerely,

Melissa C. Liquerman
Senior Technician Reviewer, Branch 2
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

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