PLR 200816017: Corporation may file a late S election after showing reasonable cause

Plain-English summary

A corporation's sole shareholder intended S corporation treatment from the company's incorporation date, but the company did not file Form 2553 on time. The IRS found reasonable cause for the missed deadline under § 1362(b)(5). It ruled that an election effective on the incorporation date would be treated as timely if the corporation filed a completed Form 2553 within 60 days of the letter and attached a copy of the ruling. The IRS did not decide whether the company otherwise qualified as a small business corporation under § 1361(b).

Ruling snapshot

• Question: Can the corporation's late S election take effect on its incorporation date?
• Outcome: Approved, if Form 2553 is filed within 60 days.
• Key authorities: IRC §§ 1361(b), 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200816017
Release Date: 4/18/2008
Index Number: 1362.01-03

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Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:B02
PLR-140108-07
Date:
January 08, 2008

-Legend

X: -----------------------------
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A: -----------------------
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State: ----------

d1: ----------------------

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

This responds to a letter dated September 4, 2007, and additional 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. A, the sole shareholder of X, intended for X to be an S corporation effective d1. However, no Form 2553, Election by a Small Business Corporation, was timely filed for X.

Section 1362(b)(5) provides that if -- (A) an election under § 1362(a) is made for any taxable year after the date prescribed by § 1362(b) for making such election for such taxable year or no such 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 such an election as timely made for such taxable year.

PLR-140108-07
2

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. Accordingly, provided that X makes an election to be an S corporation by filing a completed Form 2553 with the appropriate service center effective d1 within 60 days following the date of this letter, then such election will be treated as timely made for X’s taxable year beginning d1. 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 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).

This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) 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 forwarded to X’s authorized representative.

Sincerely,

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

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