PLR 1027006: 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 its Form 2553 to elect S corporation treatment. The corporation intended the election to be effective on the redacted incorporation date. The IRS allowed the corporation to file the completed form within 120 days of the ruling date and treated the election as timely made for the taxable year beginning on that date. The corporation had to attach a copy of the ruling to Form 2553.

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 120 days
• Key authorities: IRC §§ 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: 201027006 Third Party Communication: None
Release Date: 7/9/2010 Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
--------------------------------- -------------- - ID No. -------------
------------------------------- Telephone Number:
-------------------------- ---------------------
------------------------------------ Refer Reply To:
CC:PSI:B02
PLR-110708-10
Date:
March 16, 2010

Legend

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

State = ---------

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

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

This responds to a letter dated February 2, 2010 submitted on behalf of X by X’s
authorized representative, requesting a ruling under § 1362(b)(5) of the Internal
Revenue Code.

The information submitted states that X was incorporated in State on Date 1. It was
intended that X elect S corporation treatment effective Date 1; however, a Form 2553,
Election by a Small Business Corporation, was not 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. 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-110708-10 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 the election for the
taxable year or 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 the
election, then the Secretary may treat the election as timely made for such taxable year
and § 1362(b)(3) shall not apply.

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 to be an S corporation
by filing a completed Form 2553 with the appropriate service center effective Date 1
within 120 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 or implied as to the
federal income tax consequences of the transaction 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) of the Code
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 is being
sent to X’s authorized representative.

                                    Sincerely,


                                    Bradford R. Poston
                                    Senior Counsel, Branch 2
                                    (Passthroughs & Special Industries)

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