PLR 200826029: Corporation receives relief for a late S election

Plain-English summary

A corporation intended to elect S corporation status from its incorporation date but failed to file Form 2553 on time. The IRS found reasonable cause for the delay and said the election would be treated as timely if the corporation files a completed form, with the ruling attached, within 60 days of the letter. The ruling does not decide whether the corporation met the separate requirements to be a small business corporation under section 1361.

Ruling snapshot

• Question: Can the late S election take effect from the corporation's formation 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

INumber: 200826029
Third Party Communication: None
Date of Communication: Not Applicable
Release Date: 6/27/2008
Person To Contact:
------------------------, ID No. -------------
Index Number: 1362.01-03
Telephone Number:
---------------------
Refer Reply To:
---------------------------------------- CC:PSI:B02
------------------------------
PLR-150888-07
-------------------------------------- Date:
--------------------------------
February 26, 2008

Legend

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

State = -------------

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

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

This responds to a letter received November 16, 2007, and subsequent correspondence, submitted on behalf of X, requesting relief under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated on Date under the laws of State. It was intended for X to be an S corporation effective Date. However, no Form 2553, Election by a Small Business Corporation, was 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. 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 § 1362(b)(3), however, if an S election is made after the first two and one-half months of a

PLR-150888-07
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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: (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, then the Secretary may treat such an election as timely made for such taxable year.

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. Accordingly, provided that X makes an election to be an S corporation by filing a complete Form 2553 effective Date, along with a copy of this letter, with the appropriate service center within 60 days from the date of this letter, then such election will be treated as timely made for Date.

Except as expressly provided herein, no opinion is expressed or implied concerning the federal income 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) of the Code.

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,

Bradford R. Poston
Senior Counsel, Branch 2
Office of Associate Chief Counsel
(Passthroughs & Special Industries)

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