PLR 1026028: 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 intended date, provided the corporation filed a complete Form 2553 and attached the ruling letter within 60 days. 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)(2), 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: 201026028 Third Party Communication: None
Release Date: 7/2/2010 Date of Communication: Not Applicable
Index Number: 1362.01-03 Person To Contact:
------------------------, ID No. -------------
--------------------------------------- Telephone Number:
---------------------------------- ---------------------
------------------------------ Refer Reply To:
------------------------------------------------ CC:PSI:B02
---------------------------- PLR-151596-09
Date:
January 19, 2010

Legend

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

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

Date = -----------------

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

This responds to a letter dated March 16, 2009, submitted on behalf of X, requesting
relief under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was formed on Date under the laws of State. X
represents that X intended to be an S corporation effective Date. However, no Form
2553, Election by a Small Business Corporation, was timely filed for X.

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-151596-09 2

Section 1362(b)(5) provides that if: (A) 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 (B) 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 submitted and the representations made, we conclude that X
has established reasonable cause for failing to make a timely election to be an S
corporation effective Date. Accordingly, provided that X makes an election to be an S
corporation by filing a complete Form 2553 effective Date, along with a copy of this
letter, with the appropriate service center within 60 days from the date of this letter, then
such election will be treated as timely made for Date.

Except as expressly provided herein, no opinion is expressed or implied 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 the power of attorney on file with this office, a copy of this letter is
being sent to your authorized representative.

                                    Sincerely,



                                    Melissa C. Liquerman
                                    Branch Chief, Branch 2
                                    Office of the Associate Chief Counsel
                                    (Passthroughs & Special Industries)

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