PLR 200919028: Consistent reporting supported late S election relief

Plain-English summary

A corporation and its sole shareholder intended S corporation status from the corporation's formation date, but the corporation did not timely file Form 2553. Both had 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). The election would be treated as timely if the corporation filed a completed Form 2553, effective as of its formation date, within 60 days. The IRS did not determine whether the corporation otherwise qualified for S corporation status.

Ruling snapshot

• Question: Could the corporation's late S corporation election be treated as timely from its formation date?
• Outcome: Approved: the corporation qualified for late-election relief if it filed Form 2553 within 60 days.
• Key authorities: IRC § 1362(a), (b).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200919028
Third Party Communication: None
Release Date: 5/8/2009
Date of Communication: Not Applicable
Person To Contact:
Index Number: 1362.00-00, 1362.01-00,
----------------------, ID No. -------------
Telephone Number:
1362.01-03
---------------------
Refer Reply To:
--------------------------
CC:PSI:B03
----------------------------------------
PLR-146494-08
-------------------
Date:
----------------------------
January 29, 2009

LEGEND

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

State = ------

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

A = --------------------

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

This responds to a letter dated October 17, 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.

FACTS

X was incorporated under the laws of State on Date 1. A, the sole shareholder of X, intended that X elect to be treated as an S corporation effective Date 1. However, X’s Form 2553, Election by a Small Business Corporation was not filed timely.

X represents that both X and A have reported their income consistent with X’s intended status as an S corporation. X requests a ruling that it will be recognized as an S corporation effective Date 1.

LAW AND ANALYSIS
PLR-146494-08
2

Section 1362(a) 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 the election is 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 the 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 X has established reasonable cause for failing to make an S corporation election. Thus, we conclude that X is eligible for relief under § 1362(b)(5). Accordingly, if X makes an election to be an S corporation by filing with the appropriate service center a completed Form 2553 effective Date 1 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 X is otherwise eligible to be an S corporation for federal tax purposes.

The rulings contained in this letter are 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 request for rulings, it is subject to verification on examination.

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.
PLR-146494-08
3

In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representative.

Sincerely,

/s/

Leslie H. Finlow
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: