PLR 200910021: Reasonable cause supported relief for a late S corporation election

Plain-English summary

A corporation intended to be an S corporation from the date it was formed but did not timely file Form 2553. The IRS found reasonable cause for the missed deadline under section 1362(b)(5). It ruled that the election would be treated as timely from the intended effective date if the corporation filed a completed form within 60 days. The ruling did not decide whether the corporation otherwise met the small-business-corporation requirements.

Ruling snapshot

• Question: Could the corporation's late S election take effect on its intended original date?
• Outcome: Approved: the election would be timely if Form 2553 was filed within 60 days.
• Key authorities: IRC §§ 1361(b) and 1362(a)-(b).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200910021
Third Party Communication: None
Release Date: 3/6/2009
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-132345-08
Date: Dec. 1, 2008

Legend

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

D1 = -----------------

Dear -----------

This responds to a letter dated July 18, 2008, and subsequent correspondence 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 formed in State on D1. It was intended for X to be an S corporation effective D1. However, no Form 2553, Election by a Small Business Corporation, was timely filed for X. Accordingly, X requests a ruling that it will be treated as an S corporation effective D1.

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

PLR-132345-08
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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 (A) 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 (B) 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 D1. Accordingly, provided that X makes an election to be an S corporation by filing a completed Form 2553 with the appropriate service center effective D1 within 60 days following the date of this letter, then such election will be treated as timely made for X's taxable year beginning D1 . A copy of this letter should be attached to the Form 2553.

Except as specifically set forth above, no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the Code, including whether X was or is a small business corporation under § 1361(b).

This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) provides that it may not be used or cited as precedent.

Pursuant to a power of attorney on file with this office, a copy of this letter is being sent to X's authorized representatives.

Sincerely,

Melissa Liquerman
Senior Technician Reviewer, Branch 2
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

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