PLR 1034002: IRS grants relief for a late S corporation election

Plain-English summary

The IRS considered a corporation’s request for relief after its Form 2553 was not timely filed. The corporation’s sole shareholder intended for it to be an S corporation, and the corporation requested recognition effective on its incorporation date. The IRS concluded that the corporation had established reasonable cause and was eligible for relief under § 1362(b)(5). It ruled that the election would be treated as timely if the corporation filed a completed Form 2553 effective on the requested date within 60 days and attached a copy of the ruling. The IRS expressed no opinion on whether the corporation otherwise qualified as an S corporation.

Ruling snapshot

• Question: May a corporation’s late Form 2553 election be treated as timely after it establishes reasonable cause?
• Outcome: Approved
• Key authorities: IRC § 1362(b)(5); IRC § 6110(k)(3)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201034002 Third Party Communication: None
Release Date: 8/27/2010 Date of Communication: Not Applicable
Person To Contact:
Index Number: 1362.01-03 ------------------------, ID No. -------------------
----------------------------------------------------
Telephone Number:

                                                            ---------------------

---------------------------------------------------------- Refer Reply To:
---------------------------- CC:PSI:B03
---------------------------------- PLR-100325-10
Date:
May 20, 2010

                                                  Legend:

Company = ---------------------------------------------------------------------------------------------
-----------------------

State = --------

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

Shareholder = ---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------

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

  This letter responds to a letter dated December 16, 2009, submitted on behalf of

Company, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code (Code).

                                                    Facts

     Company was incorporated under the laws of State on Date 1. It was intended

for Company to be an S corporation. However, a Form 2553, Election by a Small
Business Corporation, was not timely filed. Company’s sole Shareholder requests a
ruling that Company will be recognized as an S corporation effective Date 1.

                                            Law and Analysis

PLR-100325-10 2

  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 such election shall be 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 such election, the Secretary may treat the election
as timely made for the taxable year (and § 1362(b)(3) shall not apply).

                                   Conclusion

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

Company has established reasonable cause for failing to timely make an S corporation
election. Thus, we conclude that Company is eligible for relief under § 1362(b)(5).
Accordingly, if Company makes an election to be an S corporation by filing with the
appropriate service center a completed Form 2553 effective Date 1 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 Form 2553. A copy is enclosed for that purpose.

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

the tax consequences of any aspect of any transaction or item discussed or referenced
in this letter. Specifically, we express or imply no opinion as to whether Company 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) of

the Code provides that it may not be used or cited as precedent.

   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.
PLR-100325-10 3

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

copy of this letter to your authorized representative.

                                 Sincerely,

                                   /s/

                                 Mary Beth Carchia
                                 Senior Technician Reviewer, Branch 3
                                 Office of the Associate Chief Counsel
                                 (Passthroughs & Special Industries)

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

cc: