PLR 1026022: IRS treated a late S corporation election as timely after finding reasonable cause

Plain-English summary

The IRS granted relief to a corporation that intended to elect S corporation status but did not timely file Form 2553. The IRS found reasonable cause for the late election and treated it as timely for the corporation's intended tax year, provided the corporation filed the required election with the appropriate service center within 60 days and attached the ruling letter. The ruling applied the late-election relief rule in IRC § 1362(b)(5). It did not decide whether the corporation otherwise qualified as a small business corporation under IRC § 1361(b).

Ruling snapshot

• Question: Could a corporation receive relief for failing to timely file its S corporation election?
• Outcome: approved
• Key authorities: IRC §§ 1361(b), 1362(a), 1362(b), 1362(b)(3), and 1362(b)(5); IRC § 6110(k)(3)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201026022 Third Party Communication: None
Release Date: 7/2/2010 Date of Communication: N/A
Person To Contact:
Index Number: 1362.01-03 -------------------- ID No. -------------
Telephone Number:
-------------------
----------------------------------- Refer Reply To:
---------------------------------- CC:PSI:B02
-------------------------------- PLR-146309-09
------------------------------- Date:
January 21, 2010

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

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

Date 1 = --------------------

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

    This responds to a letter dated September 23, 2009, and subsequent

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

     The information submitted states that X was incorporated on Date 1 under the

laws of State. It was intended for X to be an S corporation effective Date 1. However,
no Form 2553, Election by a Small Business Corporation, for X was timely received by
the Service.

   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.

Generally, 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. Section 1362(b)(3) provides that if an S election
is made after the first two and one-half months of a corporation's taxable year, then the
corporation will not be treated as an S corporation until the taxable year after the year in
which the S election is made.
PLR-146309-09 2

   Section 1362(b)(5) provides that if: (1) an election under § 1362(a) is made for

any taxable year after the date prescribed by § 1362(b) for making such election for
such taxable year or no such 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.

    Based solely on the facts and the representations submitted, we conclude that X

has established reasonable cause for failing to make a timely election to be an S
corporation effective Date 1. Accordingly, provided that X makes an election be an S
corporation by filing a completed Form 2533 with the appropriate service center
effective Date 1 within 60 days following the date of this letter, then such election will be
treated as timely made for X's taxable year beginning Date 1. A copy of this letter
should be attached to the Form 2553.

   Except as specifically set forth above, no opinion is expressed concerning the

federal income tax consequences of the facts described above under any other
provision of the Code, including whether X was or is a small business corporation under
§ 1361(b) of the Code.

  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, a copy of this letter

is being sent to X’s authorized representative.

                                              Sincerely,



                                              Bradford R. Poston
                                              Senior Counsel, Branch 2
                                              Office of the Associate Chief Counsel
                                              (Passthroughs and Special Industries)

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

cc: