PLR 200927001: Corporation receives relief for late S election

Plain-English summary

A corporation intended to be taxed as an S corporation from a specified date, but the IRS did not timely receive its election. Section 1362(b)(5) permits a late election when reasonable cause explains the missed deadline. Based on the submitted facts and representations, the IRS found reasonable cause and allowed the election to relate back to the intended date. The corporation had 60 days from the ruling letter to file the completed election with the appropriate service center.

Ruling snapshot

• Question: May the corporation’s late S election be treated as timely from its intended effective date?
• Outcome: Approved, provided the election is filed within 60 days
• Key authorities: IRC §§ 1361(b), 1362(a), 1362(b)(3), 1362(b)(5)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200927001
Third Party Communication: None
Release Date: 7/2/2009
Date of Communication: N/A
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:B02
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PLR-101906-09
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Date:
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March 24, 2009

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

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

Date 2 = ------------------

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

This responds to a letter dated December 23, 2008, submitted on behalf of X requesting relief under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated on Date 1 under the laws of State. It was intended for X to be an S corporation effective Date 2. However, no Form 2553, Election by a Small Business Corporation, for X was timely received by the Service.

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 corporation will not be treated as an S corporation until the taxable year after the year in which the S election is made.

PLR-101906-09
2

Section 1362(b)(5) provides that if: (1) an election under § 1362(a) is made for any taxable year after the date prescribed by § 1362(b) for making such election for such taxable year or no such 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.

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 Date 2. Accordingly, provided that X makes an election be an S corporation by filing a completed Form 2533 with the appropriate service center effective Date 2 within 60 days following the date of this letter, then such election will be treated as timely made for X's taxable year beginning Date 2. 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 income 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) of the Code.

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.

In accordance with a power of attorney on file with this office, a copy of this letter is being sent to X’s authorized representative.

Sincerely,

Bradford R. Poston
Senior Counsel, Branch 2
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

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