PLR 1030019: Late S corporation election relief granted with consistency conditions

Plain-English summary

The IRS granted a corporation relief for its late election to be treated as an S corporation. The corporation intended the election to be effective on a specified date but did not file it on time. The IRS found reasonable cause under section 1362(b)(5) and recognized the corporation as an S corporation from that date, provided it otherwise qualified. The corporation and its shareholders had to file consistent federal income tax returns within 60 days, apply the rules for pass-through items and stock basis, and attach the ruling to the returns. The ruling would be null and void if the corporation or its shareholders failed to follow those conditions.

Ruling snapshot

• Question: Could the corporation's late S corporation election be treated as timely?
• Outcome: Approved
• Key authorities: IRC §§ 1362(a), 1362(b), 1362(b)(5), 1366, 1367, and 1368

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201030019 Third Party Communication: None
Release Date: 7/30/2010 Date of Communication: Not Applicable
Person To Contact:
Index Number: 1362.01-03 ------------------, ID No. -------------
Telephone Number:
--------------------
------------------------------------------------- Refer Reply To:
----------------------------- CC:PSI:B01
----------------------------------------- PLR-149870-09
-------------------------------------- Date:
April 26, 2010

Legend:

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

D1 = -------------------

D2 = ----------------------

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

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

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

Facts

    X was incorporated on D1. The shareholders of X intended that X be treated as

an S corporation effective on D2, 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 D2.

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
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
PLR-149870-09 2

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 D2. 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.

    This ruling is conditioned on X, and X’s shareholders, filing, within 60 days

following the date of this letter, federal income tax returns to report consistent with X
being an S corporation for all taxable years following D2. Accordingly, X’s
shareholders, in determining their respective income tax liabilities, must include their pro
rata shares of separately and nonseparately computed items of X under § 1366, make
any adjustments to stock basis under § 1367, and take into account any distributions
made by X under § 1368. If X or X’s shareholders fail to treat X as described above, this
letter ruling will be null and void. A copy of this letter should be attached to each of the
returns described above.

   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-149870-09 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,



                                       Faith P. Colson
                                       Senior Counsel, Branch 1
                                       Office of the Associate Chief Counsel
                                       (Passthroughs and Special Industries)

Enclosures:
Copy of this letter
Copy for § 6110 purposes

cc: