PLR 201026031: Late S corporation election treated as timely for reasonable cause

Plain-English summary

The IRS ruled that a corporation had reasonable cause for failing to timely file Form 2553 to elect S corporation treatment. The corporation intended the election to be effective on the redacted date, and the IRS allowed it to file a complete form within 60 days of the ruling date. If filed as required, the election would be treated as timely made for that date.

Ruling snapshot

• Question: Could the corporation's late S corporation election be treated as timely because the failure had reasonable cause?
• Outcome: approved, subject to filing Form 2553 within 60 days
• Key authorities: IRC §§ 1361(b), 1362(a), 1362(b), and 1362(b)(5); IRC § 6110(k)(3)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201026031
Third Party Communication: None
Release Date: 7/2/2010
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:B02
PLR-155566-09
Date:
January 21, 2010

Legend

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

State = ------

Date1 = ---------------------------

Date2 = ----------------------

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

This responds to a letter dated December 17, 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 formed on Date1 under the laws of State. X represents that X intended to be an S corporation effective Date2. 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-155566-09
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 Date2. Accordingly, provided that X makes an election to be an S corporation by filing a complete Form 2553 effective Date2, 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 Date2.

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.

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 § 6110 purposes

cc: