PLR 201007046: IRS treated a late S corporation election as timely

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 sole shareholder intended the election to be effective on a specified date, and the corporation and shareholder reported income consistently with that intended status. The IRS found reasonable cause for the late filing and ruled that the election would be treated as timely if the corporation filed the completed form 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: 201007046                                            Third Party Communication: None
Release Date: 2/19/2010                                      Date of Communication: Not Applicable
Index Numbers: 1362.00-00, 1362.01-00, 1362.01-03             Person To Contact:
                                                             ----------------------, ID No. -------------
-------------------------                                    Telephone Number:
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-----------------------------------                          Refer Reply To:
 ---------------------------------                           CC:PSI:B03
                                                             PLR-136979-09
                                                             Date: November 16, 2009

                                                  LEGEND
X        = ------------------------------------------------------------------------------------------------------
           -----------------------
A        = ------------------------------------------------------------------------------------------------------
           -------------------------
State = ------------
Date     = ------------------

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

This letter responds to a letter dated July 10, 2009, and subsequent correspondence, submitted on behalf of X by X’s authorized representative, requesting relief under § 1362(b)(5) of the Internal Revenue Code.

                                                   FACTS

X was established under the laws of State on Date. A, the sole shareholder of X, intended that X elect to be treated as an S corporation effective Date. However, X’s Form 2553, Election by a Small Business Corporation, was not filed timely.

X represents that both X and A have reported their income consistent 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-136979-09                                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, we rule that the election shall be treated as timely made. A copy of this letter should be attached to Form 2553.

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. Specifically, no opinion is expressed or implied as to whether X is otherwise eligible to be 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.

In accordance with a power of attorney on file with this office, we are sending a copy of this letter to your authorized representative.

PLR-136979-09                               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.

                                     Sincerely,

                                     /s/

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

Enclosures (2):

A copy of this letter
A copy for § 6110 purposes