PLR 1037015: IRS granted relief for a late S corporation election

Plain-English summary

The IRS granted relief to a company whose Form 2553 election to be treated as an S corporation was not filed. The company represented that its shareholders intended S corporation treatment from a specified date. The IRS found reasonable cause under IRC § 1362(b)(5) and ruled that the election would be treated as timely if the company filed a completed Form 2553 with the appropriate service center within 60 days of the letter. The ruling did not determine whether the company was otherwise eligible for S corporation status.

Ruling snapshot

• Question: Could the company obtain relief for its late S corporation election?
• Outcome: Approved
• Key authorities: IRC §§ 1362(a)(1), 1362(b)(1), 1362(b)(3), and 1362(b)(5)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201037015 Third Party Communication: None
Release Date: 9/17/2010 Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
---------------------------- --------------------, ID No. -------------
------------------------ Telephone Number:
---------------------------- ---------------------
-------------------------------------- Refer Reply To:
CC:PSI:3
PLR-112728-10
Date:
June 10, 2010

                                                   LEGEND

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

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

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

Date2 = --------------------

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

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

 This letter responds to a letter dated March 16, 2010, written on behalf of

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

                                                   FACTS

  Company was incorporated in State on Date1. Company’s shareholders

intended for Company to be an S Corporation effective Date2. However, Company’s
Form 2553, Election by a Small Business Corporation, was not filed.

     Company requests a ruling that it will be recognized as an S corporation effective

Date2.

                                        LAW AND ANALYSIS

PLR-112728-10 2

  Section 1362(a)(1) provides that a small business corporation may elect 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 at any time during the preceding taxable
year, or 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 small business corporation makes an

election under § 1362(a) for any taxable year, and 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 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 election is made for any
taxable year, and the Secretary determines that there was reasonable cause for the
failure to timely make the election, then 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 the representations made, we conclude

that Company has established reasonable cause for failing to make an S corporation
election in a timely manner. Thus, we conclude that Company is eligible for relief under
§ 1362(b)(5). Accordingly, if Company makes an election to be an S corporation
effective Date2 by filing a completed Form 2553 with the appropriate service center
within 60 days from the date of this letter, then such election will 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 Company is otherwise eligible to be an S corporation for federal tax purposes.

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

copy of this letter to Company’s authorized representative.

  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-112728-10 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