PLR 1026029: 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 filed Form 2553 late. The corporation and its sole shareholder had reported their income consistently with the intended S corporation status. The IRS found reasonable cause for the late filing and allowed the election to be treated as timely, provided the corporation filed Form 2553 within 60 days after the ruling letter. The ruling addressed the late-election procedure under IRC § 1362(b)(5), but did not determine whether the corporation otherwise qualified as an S corporation.

Ruling snapshot

• Question: Could a corporation receive relief for filing its S corporation election late after reporting consistently with the intended status?
• Outcome: approved
• Key authorities: IRC §§ 1362(a), 1362(b)(1), 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: 201026029 Third Party Communication: None
Release Date: 7/2/2010 Date of Communication: Not Applicable
Person To Contact:
Index Numbers: 1362.00-00, 1362.01-00, ----------------------, ID No. -------------
1362.01-03
Telephone Number:
---------------------
Refer Reply To:
----------------------- CC:PSI:B03
----------------------------------- PLR-153158-09
----------------------------------------- Date:
---------------------------- March 24, 2010

                                                LEGEND

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

State = --------

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

A = ------------------------------------------------------------------------------------------------------
-------------------------

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

This responds to a letter dated December 3, 2009, and subsequent correspondence,
submitted on behalf of X by X’s authorized representative, requesting a ruling under
§ 1362(b)(5) of the Internal Revenue Code.

                                                 FACTS

X was incorporated under the laws of State on Date. A, the sole shareholder of X,
intended that X elect to be treated as an S corporation effective Date. However, X’s
Form 2553, Election by a Small Business Corporation, was not filed timely.

X represents that both X and A have reported their income consistent with X’s intended
status as an S corporation. X requests a ruling that it will be recognized as an S
corporation effective Date.

PLR-153158-09 2

                              LAW AND ANALYSIS

Section 1362(a) provides that, except as provided in § 1362(g), a small business
corporation may elect, in accordance with the provisions of § 1362, 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 (A) at any time during the preceding taxable
year, or (B) 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) a small business corporation makes an election
under § 1362(a) for any taxable year, and (B) 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 (A) 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 § 1362(a) election is made
for any taxable year, and (B) the Secretary determines that there was reasonable cause
for the failure to timely make the election, 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 representations made, we conclude that X has
established reasonable cause for failing to make an S corporation election. Thus, we
conclude that X is eligible for relief under § 1362(b)(5). Accordingly, if X makes an
election to be an S corporation by filing with the appropriate service center a completed
Form 2553 effective Date within 60 days following the date of this letter, we rule that the
election shall be treated as timely made. A copy of this letter should be attached to
Form 2553.

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

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, we are sending a copy of
this letter to your authorized representative.
PLR-153158-09 3

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/

                                 Leslie H. Finlow
                                 Senior Technician Reviewer, Branch 3
                                 (Passthroughs & Special Industries)

Enclosures (2):

A copy of this letter
A copy for § 6110 purposes

cc: