PLR 1027020: IRS granted a late S corporation election

Plain-English summary

The IRS granted a corporation 60 days to make a late S corporation election effective as of an earlier intended date. The corporation had been formed under state law and had one shareholder, but it did not timely file Form 2553. The IRS found reasonable cause for the late filing and allowed the election to be treated as timely if the form was filed within the 60-day period. The ruling did not decide whether the corporation otherwise qualified as an S corporation.

Ruling snapshot

• Question: Could the corporation make a late S corporation election effective as of its intended date?
• Outcome: approved
• Key authorities: IRC § 1362

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201027020 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-143433-09
Date:
January 28, 2010

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

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

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

Date = ------------------
1
Date = ----------------------
2

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

   This responds to a letter dated February 3, 2009, and subsequent

correspondence, submitted on behalf of X, requesting a ruling 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. A is the sole shareholder of X. X represents that it was intended to be
treated as an S corporation effective Date 2. 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 corporation 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
PLR-143433-09 2

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.

   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 2. 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 2 within 60 days following the date of this letter, then such election will be
treated as timely made for Date 2. A copy of this letter should be attached to the Form
2553.

   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 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.

                                   Sincerely,



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

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