PLR 201007049: IRS granted late S corporation election relief for inadvertent filing failure

Plain-English summary

The IRS granted a corporation relief for failing to timely file an election to be treated as an S corporation. The corporation's shareholder intended the election to be effective on the corporation's incorporation date, but the election was inadvertently not filed. The IRS found reasonable cause for the late filing and ruled that the corporation would be treated as an S corporation effective on that date, provided it otherwise qualified. The corporation was instructed to submit Form 2553 with a copy of the letter within 60 days.

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: 201007049                                           Third Party Communication: None
Release Date: 2/19/2010                                     Date of Communication: Not Applicable

Index Number: 1362.01-03                                    Person To Contact:
                                                            ---------------------------, ID No. ------------
----------------------------------------------------        Telephone Number:
-------------------------------------------                 ---------------------
-------------------------                                   Refer Reply To:
 --------------------------------------                     CC:PSI:B01
                                                            PLR-142489-09
                                                            Date: November 9, 2009




LEGEND:

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

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

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


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

      This responds to the letter dated August 17, 2009, submitted on behalf of X,
requesting relief under § 1362(b)(5) of the Internal Revenue Code.

FACTS

      X was incorporated on D1. The shareholder of X intended that X be treated as an
S corporation effective on D1, but the election to be treated as an S corporation was
inadvertently not filed. Accordingly, X requests a ruling that it will be treated as an S
corporation effective D1.

LAW AND ANALYSIS

      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. Section
1362(b)(2) provides in relevant part that 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. Under § 1362(b)(3),
however, if an S election is made after the first two and one-half months of a
corporation's taxable year, then that corporation will not be treated as an S corporation
until the taxable year after the year in which the S election is filed.

PLR-142489-09                                  2

        Section 1362(b)(5) provides that if (1) 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 such election, then the Secretary may treat such an election as
timely made for such taxable year and § 1362(b)(3) shall not apply.
       X did not timely file an election to be treated as an S corporation under §
1362(a). X has, however, established reasonable cause for not making a timely S
election and is entitled to relief under § 1362(b)(5).
CONCLUSION
       Based solely on the facts submitted and the representations made, and provided
that X otherwise qualifies as an S corporation, we conclude that X will be treated as an
S corporation effective D1. Within 60 days from the date of this letter, X should submit a
properly completed Form 2553, with a copy of this letter attached, to the appropriate
service center.
       Except as specifically set forth above, no opinion is expressed or implied as to
the federal tax consequences of the facts 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)
provides that it may not be used or cited as precedent.
      Pursuant to the power of attorney on file with this office, a copy of this letter will
be sent to X'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 of this letter
      Copy for § 6110 purposes