Late S corporation election may be treated as timely

Plain-English summary

The IRS considered a company's request for relief after its Form 2553, Election by a Small Business Corporation, was not timely filed. The company represented that its shareholders intended an S corporation election to be effective on a specified date and established reasonable cause for the late filing. The IRS ruled that the election could be treated as timely under IRC § 1362(b)(5), provided the company filed a completed Form 2553 with the appropriate service center within 60 days and attached a copy of the letter. The ruling did not determine whether the company otherwise qualified as an S corporation.

Ruling snapshot

• Question: Can a late S corporation election be treated as timely when the company establishes reasonable cause?
• Outcome: approved
• Key authorities: IRC §§ 1362(a)(1), 1362(b)(1), 1362(b)(3), and 1362(b)(5); Form 2553

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201011006
Third Party Communication: None
Release Date: 3/19/2010
Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:03
PLR-135700-09
Date:
November 19, 2009

LEGEND

Company = -----------------------------
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Shareholders = ----------------------------------------------------
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Date = -----------------------

State = ------

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

This letter responds to a letter dated July 30, 2009, written on behalf of Company, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

FACTS

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

PLR-135700-09
2

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

LAW AND ANALYSIS

Section 1362(a)(1) provides that a small business corporation may elect 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 at any time during the preceding taxable year, or 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 small business corporation makes an election under § 1362(a) for any taxable year, and 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 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 election is made for any taxable year, and 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 the representations made, we conclude that Company has established reasonable cause for failing to make an S corporation election in a timely manner. Thus, we conclude that Company is eligible for relief under § 1362(b)(5). Accordingly, if Company makes an election to be an S corporation effective Date by filing a completed Form 2553 with the appropriate service center within 60 days from the date of this letter, then such election will be treated as timely made. A copy of this letter should be attached to the Form 2553 filed with the service center. A copy is enclosed for that purpose.

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

PLR-135700-09
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In accordance with a power of attorney on file with this office, we are sending a copy of this letter to Company’s authorized representative.

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.

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/

Mary Beth Carchia
Senior Technician Reviewer, Branch 3
Office of Associate Chief Counsel
(Passthroughs & Special Industries)

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