PLR 200923009: Late S election relief applied from incorporation

Plain-English summary

A shareholder intended a corporation to have S corporation status from its incorporation date, but the election was not filed on time. The IRS found reasonable cause for the failure and granted relief under section 1362(b)(5). Provided the corporation otherwise qualified, it would be treated as an S corporation from the intended date. The letter directed the corporation to submit a completed Form 2553 and a copy of the ruling to the appropriate service center within 60 days. The IRS did not separately determine whether the corporation met the substantive S corporation requirements.

Ruling snapshot

• Question: Could a late S election take effect on the corporation's incorporation date?
• Outcome: Approved: intended effective date accepted, subject to eligibility and the 60-day Form 2553 filing instruction.
• Key authorities: IRC § 1362(a), (b)(2), (b)(3), (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200923009
Third Party Communication: None
Release Date: 6/5/2009
Date of Communication: Not Applicable
Person To Contact:
Index Number: 1362.01-03
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Telephone Number:
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Refer Reply To:
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CC:PSI:B01
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PLR-142101-08
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Date:
February 20, 2009

Legend:

X = ------------------
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D1 = ----------------------

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

This responds to the letter submitted on behalf of X, requesting relief under § 1362(b)(5) of the Internal Revenue Code.

Facts

X was incorporated on D1. The shareholder of X intended that X be treated as an S corporation effective on D1, but the election to be treated as an S corporation was not timely filed. Accordingly, X requests a ruling that it will be treated as an S corporation effective D1.

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 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
PLR-142101-08
2

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). 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 D1. Within 60 days from the date of this letter, X should submit a properly completed Form 2553, with a copy of this letter attached, to the appropriate service center.

Except as specifically set forth above, no opinion is expressed or implied as to the federal tax consequences of the facts 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 requesting it. Section 6110(k)(3) provides that it may not be used or cited as precedent.

Pursuant to the power of attorney on file with this office, a copy of this letter will be sent to X’s authorized representative.

Sincerely,

Dianna K. Miosi

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

Enclosures:
Copy of this letter
Copy for § 6110 purposes

cc: