PLR 1028028: The IRS granted relief for a late S corporation election

Plain-English summary

The IRS granted a corporation relief for failing to timely file an election to be treated as an S corporation. The corporation showed reasonable cause for the late election and otherwise had to qualify as an S corporation. The IRS therefore treated the election as timely under IRC § 1362(b)(5), effective as of the requested date. The corporation was required to file Form 2553 with a copy of the ruling within 60 days.

Ruling snapshot

• Question: Could the corporation's late S corporation election be treated as timely under IRC § 1362(b)(5)?
• Outcome: approved
• Key authorities: IRC §§ 1362(a), 1362(b), and 1362(b)(5); Form 2553

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201028028 Third Party Communication: None
Release Date: 7/16/2010 Date of Communication: Not Applicable
Person To Contact:
Index Number: 1362.01-03 -------------------, ID No. -------------
Telephone Number:
---------------------
------------------------------------ Refer Reply To:
----------------------------------- CC:PSI:B01
------------------------------------ PLR-153872-09
-------------------------- Date:

                                                               April 09, 2010

Legend:

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

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

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

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

   This responds to the letter dated -------------------------, submitted on behalf of X,

requesting relief under § 1362(b)(5) of the Internal Revenue Code.

Facts

     According to the information submitted, X was incorporated under the laws of

State on Date1. The shareholders of X intended that X be treated as an S corporation
effective on Date1, but the election to be treated as an S corporation was not timely
filed. Accordingly, X requests a ruling that it will be treated as an S corporation effective
Date1.

Law and Analysis

   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
PLR-153872-09 2

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.

    Section 1362(b)(5) provides that if (1) 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 such election, then the Secretary may treat such an election as
timely made for such taxable year and § 1362(b)(3) shall not apply.

   X did not timely file an election to be treated as an S corporation under

§ 1362(a). X has, however, established reasonable cause for not making a timely S
election and is entitled to relief under § 1362(b)(5).

Conclusion

   Based solely on the facts submitted and the representations made, and provided

that X otherwise qualifies as an S corporation, we conclude that X will be treated as an
S corporation effective Date1. Within 60 days from the date of this letter, X should
submit a properly completed Form 2553, with a copy of this letter attached, to the
appropriate service center.

   Except as specifically set forth above, no opinion is expressed or implied as to

the federal tax consequences of the facts 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)

provides that it may not be used or cited as precedent.
PLR-153872-09 3

  Pursuant to the power of attorney on file with this office, a copy of this letter will

be sent to X’s authorized representative.

                                               Sincerely,

                                                 /s/

                                               David R. Haglund
                                               Chief, Branch 1
                                               Office of Associate Chief Counsel
                                               (Passthroughs and Special Industries)

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

cc: