PLR 1034006: IRS grants relief for an untimely 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 and its sole shareholder had reported income consistently with the corporation’s intended S corporation status. 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: 201034006 Third Party Communication: None
Release Date: 8/27/2010 Date of Communication: Not Applicable
Person To Contact:
Index Numbers: 1362.00-00, 1362.01-00, ----------------------, ID No. -------------
Telephone Number:
1362.01-03
---------------------
Refer Reply To:
------------------------ CC:PSI:B03
------------------ PLR-103745-10
----------------------------- Date:
---------------------------- May 18, 2010

                                                LEGEND

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

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

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

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

This responds to a letter dated December 1, 2009, 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 under the laws of State on Date 1. A, the sole shareholder of X,
intended that X elect to be treated as an S corporation effective Date 1. However, X’s
Form 2553, Election by a Small Business Corporation, was not filed timely.

X represents that both X and A have reported their income consistent with X’s intended
status as an S corporation. X requests a ruling that it will be recognized as an S
corporation effective Date 1.
PLR-103745-10 2

                              LAW AND ANALYSIS

Section 1362(a) 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 solely 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 Date 1 within 60 days following the date of this letter, we rule that
the election shall be treated as timely made. A copy of this letter should be attached to
Form 2553.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter. Specifically, no opinion is expressed or implied as to 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) of the Code
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-103745-10 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/

                                 Leslie H. Finlow
                                 Senior Technician Reviewer, Branch 3
                                 Office of the Associate Chief Counsel
                                 (Passthroughs & Special Industries)

Enclosures (2):

A copy of this letter
A copy for § 6110 purposes

cc: