PLR 200845018: Late S corporation election treated as timely

Plain-English summary

A corporation’s shareholders intended to elect S corporation treatment from the incorporation date, but the election was filed late. The IRS concluded that the corporation had reasonable cause for failing to make the election on time. If the corporation otherwise qualified under subchapter S, it would be recognized as an S corporation from the intended date. To complete the relief, it had to send an original Form 2553 and a copy of the ruling to the relevant service center within 60 days.

Ruling snapshot

• Question: Would the corporation receive relief for its untimely S election?
• Outcome: Approved. The election would take effect on the intended date if the corporation qualified and submitted Form 2553 within 60 days.
• Key authorities: IRC §§ 1362(a), 1362(b), 1362(b)(5)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200845018
Third Party Communication: None
Release Date: 11/7/2008
Date of Communication: Not Applicable
Person To Contact:
Index Number: 1362.01-03
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Telephone Number:
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Refer Reply To:
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CC:PSI:B01
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PLR-109962-08
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Date:
July 30, 2008

Legend:

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

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

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

This letter is in response to your request, on behalf of X, dated February 26, 2008, for a written determination granting relief under section 1362(b)(5) of the Internal Revenue Code.

Facts

X was incorporated under the laws of State on Date 1. The shareholders of X intended that X elect to be treated as an S corporation effective Date 1. However, the election to be treated as an S corporation, effective Date 1, was not timely filed.

Law and Analysis

Section 1362(a) of the Code provides that a small business corporation can elect to be treated as an S corporation.

Section 1362(b) of the Code provides guidance on when the S election becomes effective. If an S election is made within the first two and one-half months of a
PLR-109962-08
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corporation’s taxable year, then that corporation will be treated as an S corporation for the year in which the election was made. If the corporation makes an election after the first two and one-half months of a corporation’s taxable year, then the corporation will generally not be treated as an S corporation until the following taxable year.

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

X did not file a timely election to be treated as a S corporation under section 1362(a). X has, however, established reasonable cause for not making a timely S election. Therefore, X is entitled to relief under section 13623(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 Date 1. An original Form 2553 along with a copy of this letter must be forwarded to the relevant Service Center within sixty (60) days from the date of this letter.

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(s) requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.
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Pursuant to the Power of Attorney on file with this office, we will send a copy of this ruling to your representative.

Sincerely,

Dianna K. Moisi

Dianna K. Miosi
Branch Chief, Branch 1
(Passthroughs & Special Industries)

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

cc: