PLR 200904018: Corporation received relief for a late S election

Plain-English summary

A corporation and its shareholder intended the company to be an S corporation from a specified date, but Form 2553 was not filed on time. Both had consistently reported their income as though the S election were effective. The IRS found reasonable cause for the late filing and granted relief under section 1362(b)(5). If the corporation filed a completed Form 2553 within 60 days, the election would be treated as timely from the intended effective date. The IRS did not decide whether the company otherwise qualified as an S corporation under section 1361.

Ruling snapshot

• Question: Could the corporation's late S election be treated as timely from its intended effective date?
• Outcome: Approved. The election would be timely if Form 2553 was filed within 60 days
• Key authorities: IRC §§ 1361 and 1362(b)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200904018
Third Party Communication: None
Release Date: 1/23/2009
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:B03
PLR-137324-08
Date:
September 29, 2008

Legend

Company = ---------------------------------------------------------------------------------------------
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Shareholder = ---------------------------------------------------------------------------------------------
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Date1 = ----------------------

Date2 = -----------------------

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

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

This letter responds to a letter dated August 21, 2008, and subsequent correspondence, submitted on behalf of Company by Company’s authorized representative, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

Facts

Company was incorporated under the laws of State on Date1. Company represents that it was the intent of Shareholder for Company to be an S corporation as of Date2. However, Company’s Form 2553, Election by a Small Business Corporation, was not timely filed.

Company represents that both Company and Shareholder have reported their income consistent with Company’s intended status as an S corporation. Company requests a ruling that it will be recognized as an S corporation effective Date2.
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Law and Analysis

Section 1362(a)(1) provides that, except as provided in § 1362(g), a small business corporation may elect, in accordance with the provisions of § 1362, 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) a small business corporation makes an election under § 1362(a) for any taxable year, and (B) 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 such election shall be treated as made for the following taxable year.

Section 1362(b)(5) provides that if (A) 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 (B) the Secretary determines that there was reasonable cause for the failure to timely make such election, the Secretary may treat the election as timely made for the taxable year (and § 1362(b)(3) shall not apply).

Conclusion

Based solely on the facts submitted and representations made, we conclude that Company has established reasonable cause for failing to make an S corporation election. Thus, we conclude that Company is eligible for relief under § 1362(b)(5). Accordingly, if Company makes an election to be an S corporation by filing with the appropriate service center a completed Form 2553 effective Date2 within 60 days following the date of this letter, we rule that the election shall be treated as timely made. A copy of this letter should be attached to Form 2553.

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 as to whether Company otherwise qualifies as a subchapter S corporation under § 1361.

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 ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed
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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.

In accordance with the power of attorney on file with this office, a copy of this letter is being sent to your authorized representative.

Sincerely,

/s/

Leslie H. Finlow
Senior Technician Reviewer, Branch 3
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosures (2)

A copy of this letter
A copy for § 6110 purposes