PLR 200824016: Late S corporation election receives filing relief

Plain-English summary

A corporation's sole shareholder intended to elect S corporation treatment from a specified date, but the election was not filed on time. The IRS found reasonable cause for the late filing under § 1362(b)(5). It allowed the election to be treated as timely if the corporation filed a completed Form 2553, effective on the requested date, with a copy of the ruling within 60 days. The IRS did not decide whether the corporation otherwise qualified as an S corporation.

Ruling snapshot

• Question: Could a late S corporation election take effect on the originally intended date?
• Outcome: Yes, if the corporation files Form 2553 and the ruling 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: 200824016
Third Party Communication: None
Release Date: 6/13/2008
Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
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-------------------------, ID No. -------------
------------------------------------------- Telephone Number:
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----------------------------------------- Refer Reply To:
CC:PSI:B1
PLR-145917-07
Date: March 11, 2008

Legend:

X = ----------------------------------------
----------------------------------------------------

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

Date 2 = ----------------------

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

This responds to a letter dated September 25, 2007, submitted on behalf of X, requesting relief under ' 1362(b)(5) of the Internal Revenue Code.

Facts

The information submitted states that X was incorporated on Date 1. The sole shareholder of X represents that X intended to elect to be an S corporation effective Date 2, but the election to be an S corporation was not timely filed. Accordingly, X requests a ruling that it will be treated as an S corporation effective Date 2.

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 an S corporation for the year in which the election is made. Under

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PLR-145917-07

' 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.

Conclusion

Based solely on the facts submitted and the representations made we conclude that X has established reasonable cause for failing to make a timely election to be an S corporation effective Date 2. Accordingly, provided that X makes an election to be an S Corporation by filing a properly completed Form 2553 effective Date 2, along with a copy of this letter, with the appropriate service center within 60 days from the date of this letter, then such an election will be treated as timely made for Date 2.

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.

PLR-145917-07
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In accordance with the power of attorney on file with this office, a copy of this letter is being sent to the taxpayers’ authorized representative.

Sincerely,

/s/

Audrey Ellis
Senior Counsel, Branch 1
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

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