PLR 1026016: IRS granted relief for an inadvertently late S corporation election

Plain-English summary

The IRS granted a corporation relief for failing to timely file an election to be treated as an S corporation. The shareholders intended the election to take effect when the corporation was formed, but the filing was inadvertently missed. Because the corporation established reasonable cause and otherwise qualified as an S corporation, the IRS treated the election as timely made and effective on the requested date. The corporation was instructed to file Form 2553 with a copy of the ruling within 60 days.

Ruling snapshot

• Question: Could a corporation receive relief under IRC § 1362(b)(5) for an inadvertently late S corporation election?
• Outcome: approved
• Key authorities: IRC §§ 1362(a), 1362(b), 1362(b)(5), and 6110(k)(3)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201026016 Third Party Communication: None
Release Date: 7/2/2010 Date of Communication: Not Applicable
Person To Contact:
Index Number: 1362.01-03 ---------------------------, ID No. -------------
Telephone Number:
---------------------
------------------------- Refer Reply To:
--------------------------------- CC:PSI:B01
------------------------ PLR-141604-09
------------------------- Date:
March 09, 2010

LEGEND:

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

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

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

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

   This responds to the letter dated July 10, 2009, and subsequent correspondence,

submitted on behalf of X, requesting relief under § 1362(b)(5) of the Internal Revenue
Code.

FACTS

     X was incorporated on D1 under the laws of State. 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-141604-09 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,

                                          /s/


                                       Faith Colson
                                       Senior Counsel, Branch 1
                                       Office of the Associate Chief Counsel
                                       (Passthroughs and Special Industries)

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

cc: