PLR 200844007: Corporation received 60 days to make late S election

Plain-English summary

A corporation’s sole shareholder intended the company to be an S corporation from its incorporation date, but Form 2553 was not filed on time. Section 1362(b)(5) lets the IRS treat a late S election as timely when reasonable cause explains the failure. Based on the submitted facts and representations, the IRS found reasonable cause and granted relief. The corporation had 60 days from the ruling date to file a completed Form 2553 using the intended effective date and attach the ruling. The IRS did not decide whether the corporation was otherwise eligible for S corporation status.

Ruling snapshot

• Question: Could the corporation’s late S election be treated as effective from its incorporation date?
• Outcome: Approved, provided the corporation filed Form 2553 within 60 days and attached the ruling.
• Key authorities: IRC § 1362(a), (b)(1), (b)(3), (b)(5)

Full text (IRS public release)

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Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 200844007 Third Party Communication: None
Release Date: 10/31/2008 Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
--------------------------------- -------------------------, ID No. -------------
---------------------------------------------------- Telephone Number:
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-------------------------------- Refer Reply To:
CC:PSI:03
PLR-117609-08
Date: July 15, 2008

LEGEND

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

A = ------------------------------------------------------------------------------------------------------
--------------------------

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

D1 = -----------------

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

   This letter responds to a letter dated March 4, 2008, and subsequent

correspondence, written on behalf of X, requesting a ruling under § 1362(b)(5) of the
Internal Revenue Code.

Facts

   X was incorporated under State law on D1. A, X’s sole shareholder, intended for

X to be an S corporation effective D1. However, X’s Form 2553, Election by a Small
Business Corporation, was not filed timely.

     X requests a ruling that it will be recognized as an S corporation effective D1.

Law and Analysis
PLR-117609-08 2

  Section 1362(a)(1) provides that a small business corporation may elect to be an

S corporation.

    Section 1362(b)(1) provides that an election under § 1362(a) may be made by a

small business corporation for any taxable year (A) at any time during the preceding
taxable year, or (B) at any time during the taxable year and on or before the 15th day of
the third month of the taxable year. Section 1362(b)(3) provides that if a small business
corporation makes an election under § 1362(a) for any taxable year, and the election is
made after the 15th day of the third month of the taxable year and on or before the 15th
day of the third month of the following taxable year, then the election is treated as made
for the following taxable year.

    Section 1362(b)(5) provides that if an election under § 1362(a) is made for any

taxable year (determined without regard to § 1362(b)(3)), 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 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 the taxable year (and § 1362(b)(3) shall not apply).

Conclusion

   Based on the facts submitted and representations made, we conclude that X has

established reasonable cause for failing to make an S corporation election. Thus, we
conclude that X is eligible for relief under § 1362(b)(5). Accordingly, if X makes an
election to be an S corporation by filing with the appropriate service center a completed
Form 2553 within 60 days of this letter, containing an effective date of D1, the election
shall be treated as timely made. A copy of this letter should be attached to the Form
2553 filed with the service center. A copy is enclosed for that purpose.

   Except as expressly provided herein, we express or imply no opinion concerning

the federal tax consequences of any aspect of any transaction or item discussed or
referenced in this letter. Specifically, we express or imply no opinion concerning
whether X is otherwise eligible to be 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 a power of attorney on file with this office, a copy of this letter

is being sent to your authorized representative.
PLR-117609-08 3

   The ruling contained in this letter is 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 ruling request, it is subject to verification on examination.

                                 Sincerely,

                                     /s/

                                 James A. Quinn
                                 Senior Counsel, Branch 3
                                 Office of the Associate Chief Counsel
                                 (Passthroughs & Special Industries)

Enclosures (2):

  Copy of this letter
  Copy for § 6110 purposes

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