PLR 200847010: Reasonable cause excused a late S corporation election

Plain-English summary

A corporation intended to elect S corporation status from the date it was incorporated but did not timely file Form 2553. The IRS found reasonable cause for the missed deadline under IRC § 1362(b)(5). It agreed to treat the election as timely if the corporation filed a completed Form 2553 within 90 days and attached the ruling. The corporation and its shareholder also had to file consistent original or amended returns within 90 days for all open tax years. Failure to meet those conditions would make the ruling null and void, and the IRS expressed no opinion on whether the corporation otherwise qualified for S corporation status.

Ruling snapshot

• Question: Could a corporation obtain relief for a late S corporation election when reasonable cause explained the missed Form 2553 deadline?
• Outcome: Approved conditionally. The election would be timely if the corporation and shareholder completed the required filings within 90 days.
• Key authorities: IRC §§ 1362(b)(5) and 6501(a)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200847010
Third Party Communication: None
Release Date: 11/21/2008
Date of Communication: Not Applicable
Person To Contact:
Index Number: 1362.01-03
--------------------, ID No. -------------
Telephone Number:
--------------------
-------------------------------
Refer Reply To:
--------------------------------------
CC:PSI:02
---------------------------------
PLR-123809-08
------------------------------
Date:
July 31, 2008

LEGEND:

-----------------------------------------------------------------
--------------------------------------------------

--------------------------------------

------------------------------------------------

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

This responds to a letter dated May 7, 2008, submitted on behalf of X by X’s authorized representative, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated in State on Date 1. It was intended that X elect S corporation treatment effective Date 1; however, a Form 2553, Election by a Small Business Corporation, was not 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.
Generally, 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. Section 1362(b)(3) provides that if an S 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.

Section 1362(b)(5) provides that if (1) an election under § 1362(a) is made for any taxable year after the date prescribed by § 1362(b) for making the election for the

PLR-123809-08
2

taxable year or no § 1362(a) election is made for any taxable year, and (2) 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 such taxable year and § 1362(b)(3) shall not apply.

Based solely on the facts and the 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 with the appropriate service center effective Date 1 within 90 days following the date of this letter, then such election will be treated as timely made for X's taxable year beginning Date 1. A copy of this letter should be attached to the Form 2553. This ruling is conditioned on X, and X’s shareholder, filing, within 90 days following the date of this letter, initial or amended returns to report consistent with X being an S corporation for all taxable years for which the period provided in § 6501(a) has not expired. If X and its shareholder does not comply with these conditions, this letter is null and void. A copy of this letter should be attached to each of the returns described above.

Except as specifically set forth above, no opinion is expressed or implied as to the Federal income tax consequences of the transaction described above under any other provision of the Code. Specifically, no opinion is expressed concerning whether X is, in fact, eligible to be an S corporation for federal tax purposes.

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.

Pursuant to 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 the Associate Chief Counsel
(Passthroughs & Special Industries)

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

cc: