PLR 200914012: A defective S corporation filing received late-election relief

Plain-English summary

A corporation's shareholder intended S corporation treatment beginning on the incorporation date, but the election was not filed correctly or on time. The IRS found reasonable cause for the filing failure under section 1362(b)(5). It ruled that the corporation would be recognized as an S corporation from the intended date if it otherwise qualified. The corporation had 60 days from the ruling date to send the appropriate service center an original Form 2553 with a copy of the letter.

Ruling snapshot

• Question: Could an incorrectly filed S election be treated as effective from the corporation's intended start date?
• Outcome: Approved: reasonable cause supported relief, conditioned on eligibility and filing Form 2553 within 60 days.
• Key authorities: IRC § 1362(a), (b), and (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200914012
Third Party Communication: None
Release Date: 4/3/2009
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:B01
PLR-135927-08
Date:
December 15, 2008

Legend:

X = ---------------------------------------
------------------------------------------------------------------------------

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

Date 1 = ---------------------------

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

This letter is in response to your request, on behalf of X, dated August 14, 2008, for a written determination granting relief under section 1362(b)(5) of the Internal Revenue Code.

Facts

X was incorporated under the laws of State on Date 1. The shareholder of X intended that X elect to be treated as an S corporation effective Date 1. However, the election to be treated as an S corporation, effective Date 1, was not correctly filed.

Law and Analysis

Section 1362(a) of the Code provides that a small business corporation can elect to be treated as an S corporation.
PLR-135927-08
2

Section 1362(b) of the Code provides guidance on when the S election becomes effective. If an S election is made within the first two and one-half months of a Corporation’s taxable year, then that corporation will be treated as an S corporation for the year in which the election was made. If the corporation makes an election after the first two and one-half months of a corporation’s taxable year, then the corporation will generally not be treated as an S corporation until the following taxable year.

Section 1362(b)(5) of the Code provides that if no election is made pursuant to section 1362(a), or if the election is made after the date prescribed for making such an election, and the Secretary determined reasonable cause existed for the failure to timely make the election, then the Secretary can treat such an election as being timely made for that taxable year and effective as of the first day of that taxable year.

X did not file a correct timely election to be treated as a S corporation under section 1362(a). X has, however, established reasonable cause for not making a correct timely S election. Therefore, X is entitled to relief under section 13623(b)(5).

Conclusion

Based solely on the facts submitted and representations made, and provided that X otherwise qualifies as a subchapter S corporation, we conclude that X will be recognized as an S corporation effective Date 1. An original Form 2553 along with a copy of this letter must be forwarded to the relevant Service Center within sixty (60) days from the date of this letter.

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.

This ruling is directed only to the taxpayer(s) requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.
PLR-135927-08
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Pursuant to the Power of Attorney on file with this office, we will send a copy of this ruling to your representative.

Sincerely,

Dianna K. Miosi

Dianna K. Miosi
Branch Chief, Branch 1
(Passthroughs & Special Industries)

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

cc: