PLR 201007042: IRS granted relief for a late S corporation election

Plain-English summary

The IRS granted a corporation relief for failing to timely file Form 2553, its election to be treated as an S corporation. The corporation's shareholders intended the election to be effective on a specified date, but the form was not filed on time. The IRS found reasonable cause for the failure and ruled that the election would be treated as timely if the corporation filed the completed Form 2553 within 60 days of the letter. The ruling did not decide whether the corporation otherwise qualified as an S corporation.

Ruling snapshot

• Question: Could the corporation's late S corporation election be treated as timely under IRC § 1362(b)(5)?
• Outcome: Approved
• Key authorities: IRC § 1362(a), (b), and (b)(5)

Full text (IRS public release)

Internal Revenue Service                                        Department of the Treasury
                                                                Washington, DC 20224
Number: 201007042                                               Third Party Communication: None
Release Date: 2/19/2010                                         Date of Communication: Not Applicable
Index Number: 1362.01-03
                                                                Person To Contact:
--------------------                                            -------------------, ID No. -------------
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 ------------------------------------                           Refer Reply To:
                                                                CC:PSI:B03
                                                                PLR-130078-09
                                                                Date:
                                                                November 06, 2009

                                                    LEGEND

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

Shareholders               =        ------------------
------------------------------------------------------------

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

State                      =        ----------

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

       This responds to a letter dated June 2, 2009, written on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

                                                     FACTS

      X was incorporated in State on Date. Shareholders intended for X to be an S corporation effective Date. However, X’s Form 2553, Election by a Small Business Corporation, was not filed timely.

         X requests a ruling that it will be recognized as an S corporation effective Date.

PLR-130078-09                                2

                                  LAW AND ANALYSIS

      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, within 60 days following the date of this letter, then the election will be treated as timely made. A copy of this letter should be attached to the Form 2553.

        Except as expressly provided herein, we express or imply no opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. Specifically, we express or imply no opinion as to whether X is otherwise eligible to be an S corporation for federal tax purposes.

       This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

PLR-130078-09                                    3

       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.

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

                                           Sincerely,

                                           /s/

                                           Leslie H. Finlow
                                           Senior Technician Reviewer, Branch 3
                                           Office of Associate Chief Counsel
                                           (Passthroughs and Special Industries)




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