PLR 200905024: Company received late S corporation election relief

Plain-English summary

A company and its shareholders intended the company to be an S corporation from a specified date, but Form 2553 was not timely filed. They nevertheless reported income consistently with the intended S corporation status. The IRS found reasonable cause for the late election and granted relief under section 1362(b)(5). If the company filed a completed Form 2553 within 60 days of the ruling, the IRS would treat its S corporation election as timely effective on the intended date. The IRS did not determine whether the company otherwise qualified as a subchapter S corporation under section 1361.

Ruling snapshot

• Question: Could the company receive relief for its late S corporation election when it and its shareholders consistently reported as though the election were effective?
• Outcome: Approved, conditioned on filing Form 2553 within 60 days of the ruling
• Key authorities: IRC §§ 1361 and 1362(a), (b)(1), (b)(3), and (b)(5)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200905024
Third Party Communication: None
Release Date: 1/30/2009
Date of Communication: Not Applicable
Person To Contact:
Index Number: 1362.01-03
-----------------------, ID No. -------------
Telephone Number:
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Refer Reply To:
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CC:PSI:B03
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PLR-135667-08
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Date:
October 16, 2008

Legend

Company = --------------------------------------------------------------------------------------------
------------------------

Shareholders = ------------------------------------------

Date = -----------------------

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

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

This letter responds to a letter dated June 30, 2008, and subsequent correspondence, submitted by Company, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

Facts

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

Company represents that Company and Shareholders 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 Date.

Law and Analysis

PLR-135667-08
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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 Date 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.

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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/

Tara P. Volungis
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

cc: