PLR 200837007: Corporation obtained reasonable-cause relief for a late S election

Plain-English summary

A corporation intended S corporation status from its redacted incorporation date but did not file the election on time. It requested relief under section 1362(b)(5). The IRS found reasonable cause for the missed deadline and ruled that the corporation would be recognized as an S corporation from the intended date if it otherwise qualified. The corporation had 60 days from the letter date to file a properly completed Form 2553 with a copy of the ruling. The IRS reserved all other tax consequences.

Ruling snapshot

• Question: Could the corporation's S election be treated as timely from its intended effective date?
• Outcome: Approved
• Key authorities: IRC §§ 1362(a), 1362(b)(2), and 1362(b)(5)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200837007
Third Party Communication: None
Release Date: 9/12/2008
Date of Communication: Not Applicable
Person To Contact:
Index Number: 1362.01-03
-----------------, ID No. -------------
Telephone Number:
---------------------
----------------------------------------
Refer Reply To:
------------------------------------
CC:PSI:B01
-----------------------------------
PLR-105828-06
----------------------------
Date:
May 30, 2008

LEGEND

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

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

This responds to a letter dated December 9, 2005, submitted on behalf of X, requesting relief under section 1362(b)(5) of the Internal Revenue Code.

FACTS

According to the information submitted, X was incorporated on D under the laws of State. X intended to be treated as an S corporation for Federal tax purposes effective D, but the election was not timely filed.

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 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. If the 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.
PLR-105828-06
2

Section 1362(b)(5) provides that if no election is made pursuant to section 1362(a), or, if made, the election is made after the date prescribed for making such an election, and the Secretary determines there was reasonable cause for the failure to timely make the election, then the Secretary may treat such election as timely made for such taxable year and effective as of the first day of that year.

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

CONCLUSION

Based solely on the facts submitted and representations made, and provided that X otherwise qualifies as a subchapter S corporation, we conclude that X will be recognized as an S corporation effective D. Within 60 days from the date of this letter, X should submit a properly completed Form 2553, with a copy of this letter attached, to the appropriate service center.

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter.

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.

The rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination.

Sincerely,

David R. Haglund
Senior Technician Reviewer, Branch 1
(Passthroughs & Special Industries)

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

cc: