PLR 200821001: S corporation received late election relief

Plain-English summary

A corporation intended to elect S corporation status from its incorporation date but did not file Form 2553 on time. The IRS found reasonable cause for the missed deadline and granted relief under IRC § 1362(b)(5). It said the company would be treated as an S corporation from the redacted formation date if it otherwise qualified and filed a properly completed Form 2553 within 60 days of the letter. The IRS did not independently decide whether the company met all other S corporation requirements.

Ruling snapshot

• Question: Could the corporation's late S election take effect from its incorporation date?
• Outcome: Approved conditionally; Form 2553 had to be filed 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: 200821001
Third Party Communication: None
Release Date: 5/23/2008
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-101253-08
Date:
February 06, 2008

Legend

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

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

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

This responds to a letter dated December 28, 2007, submitted by X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated in State on Date 1. It was intended that X elect to be an S corporation effective Date 1; however, a Form 2553, Election by a Small Business Corporation, was not timely filed for X. Accordingly, X requests a ruling that it will be treated as an S corporation effective Date 1.

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 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 an S corporation for the year in which the election is made. Under § 1362(b)(3),

PLR-101253-08
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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) 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.

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

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, 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.

In accordance with the power of attorney on file with this office, a copy of this letter is being sent to X’s authorized representative.

Sincerely yours,

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

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

CC: