PLR 1039016: IRS granted relief for a late S corporation election

Plain-English summary

A corporation that had not yet begun active business intended to elect S corporation status for a redacted tax year. Its Form 2553 was not filed on time, so it asked the IRS for relief under section 1362(b)(5). The IRS found reasonable cause and allowed the corporation 120 days to file a completed Form 2553, after which the election would be treated as timely made for the redacted effective date. The ruling did not decide whether the corporation otherwise qualified as an S corporation.

Ruling snapshot

• Question: Could the corporation receive relief for its late S corporation election?
• Outcome: Approved
• Key authorities: IRC § 1362(b)(5)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201039016 Third Party Communication: None
Release Date: 10/1/2010 Date of Communication: Not Applicable
Index Number: 1362.00-00, 1362.01-03
Person To Contact:
--------------------------------------- ---------------------, ID No. -----------------
----------------------------------------- Telephone Number:
-------------------- -------------------
--------------------------------- Refer Reply To:
C:PSI:B03
PLR-120917-10
Date:
June 14, 2010

                                               Legend

X = ------------------------------------------------------------------------------------------------------
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Y = ------------------------------------------------------------------------------------------------------
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Year = ------------------------------------------------------------------------------------------------------
a ------------------------------------------------------------------------------------------------------
= -------
Year
b
Date = ------------------------------------------------------------------------------------------------------
1 ------------------------------------------------------------------------------------------------------
= ------------------------------------------------------------------------------------------------------
A ------------------------------------------------------------------------------------------------------
= --------------
State

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

   This letter responds to a letter dated April 28, 2010, submitted on behalf of X

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

                                                 Facts

    X was incorporated under State law in Year a. X did not have any assets and did

not begin the active conduct of its business until early in Year b. A is the sole
shareholder of X. It is represented that X intended to be an S corporation effective
Date 1. However, X’s Form 2553, Election by a Small Business Corporation, was not
filed timely.
PLR-120917-10 2

   X requests a ruling that it will be recognized as an S corporation effective Date 1.

                                Law and Analysis

  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 (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) such 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 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 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 on the facts submitted and representations made, we conclude that X has

established reasonable cause for failing to make a timely 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 120 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, 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, we express or imply no opinion concerning
whether X is otherwise eligible to be an S corporation for federal tax purposes.

  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
PLR-120917-10 3

by an appropriate party. While this office has not verified any of the material submitted
in support of the request for a ruling, it is subject to verification on examination.

   In accordance with a power of attorney in file with this office, a copy of this letter

is being sent to your authorized representative.

  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.

                                    Sincerely,

                                     /s/

                                    Danielle M. Grimm
                                    Acting Senior Technician Reviewer
                                    Office of the Associate Chief Counsel, Branch 3
                                    (Passthroughs & Special Industries)

Enclosures (2)
A copy of this letter
A copy for § 6110 purposes