PLR 1033006: IRS granted relief for a late S corporation election

Plain-English summary

A corporation's sole shareholder intended for it to be treated as an S corporation, but Form 2553 was not filed on time. The corporation asked the IRS to allow a late election effective from its start of operations. The IRS found reasonable cause and granted relief under section 1362(b)(5), conditioned on filing Form 2553 with a copy of the ruling within 60 days. 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 from its specified start date?
• Outcome: Approved
• Key authorities: IRC § 1362(a), (b), and (b)(5).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201033006 Third Party Communication: None
Release Date: 8/20/2010 Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
--------------------------------- ----------------------, ID No. -------------
--------------------------------------------------- Telephone Number:
---------------------------------------------------- --------------------
------------------------------- Refer Reply To:
---------------------------------------- CC:PSI:B03
PLR-107969-10
Date: May 12, 2010

                                                   LEGEND

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

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

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

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

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

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

   This letter responds to a letter dated February 11, 2010, and subsequent

correspondence, submitted on behalf of X by X’s authorized representative, requesting
a ruling under § 1362(b)(5) of the Internal Revenue Code.

                                                   FACTS

   X was incorporated on D1 under State law and began operations on D2. A, X’s

sole shareholder, intended for X to be an S corporation effective D2. However, X’s
Form 2553, Election by a Small Business Corporation, was not timely filed. X requests
a ruling that it be permitted to file a late S corporation election effective D2.

PLR-107969-10 2

                              LAW AND ANALYSIS

  Section 1362(a)(1) provides that, except as provided in § 1362(g), a small

business corporation may elect, in accordance with the provisions of § 1362, to be an S
corporation.

    Section 1362(b)(1) provides that an election under § 1362(a) may be made by a

small business corporation for any taxable year (A) at any time during the preceding
taxable year, or (B) at any time during the taxable year and on or before the 15th day of
the third month of the taxable year.

   Section 1362(b)(3) provides that if (A) a small business corporation makes an

election under § 1362(a) for any taxable year, and (B) the election is made after the 15th
day of the third month of the taxable year and on or before the 15th day of the third
month of the following taxable year, then the election is treated as made for the
following taxable year.

   Section 1362(b)(5) provides that if (A) an election under § 1362(a) is made for

any taxable year (determined without regard to § 1362(b)(3)), 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 (B) the Secretary determines that there was reasonable
cause for the failure to timely make the election, the Secretary may treat the election as
timely made for the taxable year (and § 1362(b)(3) shall not apply).

                                  CONCLUSION

    Based on the facts submitted and representations made, we conclude that X has

established reasonable cause for failing to make an S corporation election. Thus, we
conclude that X is eligible for relief under § 1362(b)(5). Accordingly, if X makes an
election to be an S corporation by filing with the appropriate service center a completed
Form 2553 effective D2, within 60 days following the date of this letter, the election shall
be treated as timely made. A copy of this letter should be attached to the Form 2553
filed with the service center. A copy is enclosed for that purpose.

   Except as expressly provided herein, we express or imply no opinion concerning

the federal tax consequences of any aspect of any transaction or item discussed or
referenced in this letter. Specifically, we express or imply no opinion concerning
whether X is otherwise eligible to be 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.

  In accordance with a power of attorney on file with this office, we are sending a

copy of this letter to your authorized representative.

PLR-107969-10 3

   The ruling contained in this letter is based upon information and representations

submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. While this office has not verified any of the material submitted
in support of the ruling request, it is subject to verification on examination.

                                 Sincerely,

                                 /s/

                                 James A. Quinn
                                 Senior Counsel, Branch 3
                                 Office of the Associate Chief Counsel
                                 (Passthroughs & Special Industries)

Enclosures (2):

A copy of this letter
A copy for § 6110 purposes