PLR 200939006: Late S corporation election relief granted

Plain-English summary

A corporation intended to elect S corporation status, but its Form 2553 was not timely filed. The corporation and its sole shareholder reported income consistently with the intended S corporation status and requested relief. The IRS found reasonable cause for the late election and ruled that the election would be treated as timely if the corporation filed a completed Form 2553 effective on the specified date within 60 days of the letter. The ruling did not address whether the corporation otherwise qualified as an S corporation.

Ruling snapshot

• Question: Could the corporation make a late S corporation election effective on the specified date?
• Outcome: Approved, subject to filing within 60 days.
• Key authorities: IRC §§ 1361, 1362(b)(5), and 1362(b)(3); Form 2553.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200939006
Third Party Communication: None
Release Date: 9/25/2009
Date of Communication: Not Applicable
Person To Contact:
Index Number: 1362.00-00, 1362.01-00,
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Telephone Number:
1362.01-03
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Refer Reply To:
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CC:PSI:B03
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PLR-119003-09
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Date:
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June 23, 2009

LEGEND

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

Date = ----------------------

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

This letter responds to a letter dated April 2, 2009, 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. X represents that its sole shareholder, A, intended for X to be an S corporation effective Date. However, Form 2553, Election by a Small Business Corporation, was not timely filed.

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

PLR-119003-09
2

LAW AND ANALYSIS

Section 1362(a)(1) 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) such 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 such election shall be 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, then 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 a timely 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, 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 the Form 2553.

Except for the specific ruling above, no opinion is expressed or implied concerning the federal tax consequences of the facts of this case under any other provision of the Code. Specifically, no opinion is expressed or implied regarding whether X otherwise qualifies as a subchapter S corporation under § 1361.

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-119003-09
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.

The ruling contained in this letter is 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 ruling request, it is subject to verification on examination.

Sincerely,

/s/

Tara P. Volungis
Senior Technician Reviewer, Branch 3
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

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

cc: