PLR 200914014: Reasonable cause supported a late S corporation election

Plain-English summary

A corporation's shareholder intended S corporation treatment from the date of incorporation, but the corporation did not file its election on time. The IRS found reasonable cause for the failure under section 1362(b)(5). It ruled that the election would take effect on the intended date if the corporation otherwise qualified as an S corporation. The corporation had 60 days from the ruling date to submit a properly completed Form 2553 for that effective date with a copy of the letter.

Ruling snapshot

• Question: Could the corporation's late S election take effect from its incorporation date?
• Outcome: Approved: the IRS granted late-election relief, conditioned on S corporation eligibility and timely submission of Form 2553.
• Key authorities: IRC § 1362(a), (b)(2), (b)(3), and (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200914014
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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------------------------, ID No. ------------------
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Telephone Number:
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Refer Reply To:
CC:PSI:B1
PLR-137334-08
Date:
December 17, 2008

Legend:

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

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

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

This letter responds to your letter dated August 20, 2008, submitted on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

Facts

The information submitted states that X was incorporated on Date 1 under the laws of State. The shareholder of X intended that X be treated as an S corporation effective Date 1 but the election to be treated as an S corporation as of Date 1 was not timely filed.

Law and Analysis

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. Section 1362(b)(2) provides in relevant part that if an S election is made within the first two and
PLR-137334-08
2

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. Under § 1362(b)(3), however, if an S election is made after the first two and one-half months of a corporation’s taxable year, then that corporation will not be treated as an S corporation until the taxable year after the year in which the S election is filed.

Section 1362(b)(5) provides that if: (1) 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 such election, then the Secretary may treat such an election as timely made for such taxable year and § 1362(b)(3) shall not apply.

X did not timely file an election to be treated as an S Corporation under § 1362(a) as of Date 1. X has, however, established reasonable cause for not making a timely S election and is entitled to relief under § 1362(b)(5).

Conclusion

Based solely on the facts submitted and the representations made, and provided that X otherwise qualifies as an S Corporation, we conclude that X will be treated as an S Corporation effective Date 1. Within 60 days from the date of this letter X should submit a properly completed Form 2553 effective Date 1, with a copy of this letter attached, to the relevant service center.

Except as specifically set forth above, no opinion is expressed or implied as to the federal income tax consequences of the transaction described above under any other provision of the Code. Specifically, no opinion is expressed concerning whether X is, in fact, an S Corporation for federal tax purposes.

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.

Sincerely,

Dianna K. Miosi

Dianna K. Miosi
Chief, Branch 1
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

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

cc: