PLR 200840021: Late S corporation election receives reasonable-cause relief

Plain-English summary

A corporation intended to be an S corporation from the date it was incorporated but did not timely file Form 2553. The IRS may treat a late S election as timely under Section 1362(b)(5) when the taxpayer shows reasonable cause. Based on the submitted facts and representations, the IRS found that standard satisfied. It granted 60 days from the ruling date to file Form 2553 effective from the intended date. The ruling did not determine whether the corporation otherwise qualified for S corporation treatment.

Ruling snapshot

• Question: May the corporation's late S election be treated as timely from its intended effective date?
• Outcome: Approved, provided Form 2553 is filed within 60 days of the ruling.
• Key authorities: IRC § 1362(a), (b)(2), (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200840021
Third Party Communication: None
Release Date: 10/3/2008
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:B01
PLR-123078-08
Date:
June 30, 2008

LEGEND:

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

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

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

This responds to a letter dated May 12, 2008, 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 under the laws of State. X intended to elect to be an S corporation for Federal tax purposes effective Date 1. However, X failed to timely file a Form 2553, Election by a Small Business Corporation.

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-123078-08
2

Section 1362(b)(5) provides that if no election is made pursuant to § 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.

CONCLUSION

Based solely on the facts and representations submitted, we conclude that X has established reasonable cause for failing to make a timely election to be an S corporation effective Date 1. Accordingly, provided that X makes an election to be an S corporation by filing a completed Form 2553 effective Date 1, 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 1.

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. Specifically, no opinion is expressed or implied concerning whether X otherwise qualifies as an S corporation for federal tax purposes.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) 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 the taxpayer's authorized representative.

Sincerely,

Audrey W. Ellis

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

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