PLR 200935017: Reasonable cause supports late S corporation election relief

Plain-English summary

The IRS considered a corporation that intended to elect S corporation status but whose timely Form 2553 filing could not be located by the IRS service center. The corporation requested relief under IRC § 1362(b)(5) and asked to be treated as an S corporation from its intended effective date. The IRS found reasonable cause for the missing timely election. It allowed the election to be treated as timely, provided the corporation filed a completed Form 2553 within 60 days after the ruling.

Ruling snapshot

• Question: May the corporation's S corporation election be treated as timely when its Form 2553 cannot be found in IRS records?
• Outcome: Approved
• Key authorities: IRC §§ 1362(a), 1362(b), and 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200935017
Third Party Communication: None
Release Date: 8/28/2009
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:B02
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PLR-151412-08
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Date:
May 18, 2009

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

D1 = -------------------------

Dear --------------

This responds to a letter dated November 28, 2008, submitted on behalf of X by X's authorized representative, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated in State on D1. It was intended that X elect S corporation treatment effective on D2; however, X's Internal Revenue Service center has no record of Form 2553, Election by a Small Business Corporation, being timely filed for X. Accordingly, X requests a ruling that it will be treated as an S corporation effective D1.

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-151412-08
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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 the election for the taxable year or 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 the election, then the Secretary may treat the election as timely made for such taxable year and § 1362(b)(3) shall not apply.

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 D1. Accordingly, provided that X makes an election to be an S corporation by filing a completed Form 2553 with the appropriate service center effective D1 within 60 days following the date of this letter, then such election will be treated as timely made for X's taxable year beginning D1. A copy of this letter should be attached to the Form 2553.

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 requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.
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3

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

Sincerely,

David R. Haglund

David R. Haglund
Acting Branch Chief, Branch 1
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures (2)

Copy for section 6110 purposes
Copy of this letter

cc: