PLR 201017042: Late S election relief conditioned on corporate qualification

Plain-English summary

The IRS granted a corporation relief for failing to timely file its S corporation election. The shareholders intended the election to take effect on the requested date, but the filing was inadvertently missed. The IRS found reasonable cause and treated the election as timely effective on that date, provided the corporation otherwise qualifies as an S corporation. The ruling expressly gives no opinion on whether the corporation is in fact an S corporation and instructs it to submit Form 2553 with a copy of the letter within 60 days.

Ruling snapshot

• Question: Can the corporation's S election be treated as timely effective after the filing deadline?
• Outcome: approved
• Key authorities: IRC § 1362(b)(5)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201017042
Third Party Communication: None
Release Date: 4/30/2010
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:
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CC:PSI:B01
PLR-155819-09
Date:
January 22, 2010

LEGEND:

X = ------------------------
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D1 = --------------------

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

This responds to the letter dated December 18, 2009, submitted on behalf of X, requesting relief under § 1362(b)(5) of the Internal Revenue Code.

FACTS

The shareholders 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),
PLR-155819-09
2

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.
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
Chief, Branch 1
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

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