PLR 200906039: A corporation received relief for a late S election

Plain-English summary

A corporation intended to be an S corporation from a specified date but did not timely file Form 2553 and instead filed a corporate income tax return for a later identified year. The IRS concluded that the corporation had reasonable cause for missing the S election deadline under section 1362(b)(5). It agreed to treat the election as timely if the corporation filed a completed Form 2553 for the intended effective date within 60 days of the ruling and attached a copy of the letter. Relief was also contingent on the corporation filing an amended return for the identified year within the same 60-day period. The IRS did not otherwise determine that the corporation qualified as an S corporation.

Ruling snapshot

• Question: Could the corporation's late S election be treated as timely because it had reasonable cause?
• Outcome: Approved: the election would be timely if Form 2553 and the required amended return were filed within 60 days.
• Key authorities: IRC §§ 1362(a), 1362(b)(3), 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200906039
Third Party Communication: None
Release Date: 2/6/2009
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:B02
PLR-143873-08
Date:
October 29, 2008

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

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

Year = -------

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

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

The information submitted states that X was incorporated in State on Date. It was intended for X to be an S corporation effective Date. However, no Form 2553, Election by a Small Business Corporation, was timely filed for X. X filed a Form 1120, U.S. Corporation Income Tax Return, for Year.

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 corporation 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.
PLR-143873-08
2

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 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. 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 within 60 days following the date of this letter, then such election will be treated as timely made for Date. A copy of this letter should be attached to the Form 2553. Furthermore, this ruling is contingent upon X filing an amended return for Year within 60 days following the date of this letter.

Except as expressly provided herein, no opinion is expressed or implied concerning the federal income tax consequences of the facts described above under any other provision of the Code, including whether X is, in fact, 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.

Sincerely,

Bradford R. Poston
Senior Counsel, Branch 2
(Passthroughs & Special Industries)

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