PLR 1040002: Late S corporation election treated as timely

Plain-English summary

The IRS granted a corporation relief for a late election to be treated as an S corporation. The corporation intended the election to be effective on its incorporation date but did not file it on time. Because the corporation established reasonable cause for the late filing, the IRS allowed the election to be treated as timely under IRC § 1362(b)(5), assuming the corporation otherwise qualified as an S corporation. The corporation was instructed to submit Form 2553 with a copy of the ruling within 60 days.

Ruling snapshot

• Question: Can a corporation's late S corporation election be treated as timely?
• Outcome: Approved
• Key authorities: IRC § 1362(b)(5)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201040002 Third Party Communication: None
Release Date: 10/8/2010 Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
------------------------------------- -----------------------, ID No. -------------
------------------------------------ Telephone Number:
-------------------- ---------------------
------------------------------ Refer Reply To:
CC:PSI:B01
PLR-122842-10
Date:
July 07, 2010

LEGEND:

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

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

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

  This responds to the letter dated May 25, 2010 and subsequent correspondence,

submitted on behalf of X, requesting relief under § 1362(b)(5) of the Internal Revenue
Code.

FACTS

    X was incorporated on D1. The shareholder of X intended that X be treated as an

S corporation effective on D1, but the election to be treated as an S corporation was not
timely filed. Accordingly, X requests a ruling that it will be treated as an S corporation
effective D1.

LAW AND ANALYSIS

  Section 1362(a) provides that a small business corporation may elect to be an S

corporation.
Section 1362(b) provides the rule on when an S election will be effective. Section
1362(b)(2) provides in relevant part that if an S election is made within the first two and
one-half months of a corporation's taxable year, then the corporation will be treated as an
S corporation for the year in which the election is made. Under § 1362(b)(3),
however, if an S election is made after the first two and one-half months of a
corporation's taxable year, then that corporation will not be treated as an S corporation
until the taxable year after the year in which the S election is filed.

PLR-122842-10 2

    Section 1362(b)(5) provides that if (1) no § 1362(a) election is made for any

taxable year and (2) the Secretary determines that there was reasonable cause for the
failure to timely make such election, then the Secretary may treat such an election as
timely made for such taxable year and § 1362(b)(3) shall not apply.
X did not timely file an election to be treated as an S corporation under
§ 1362(a). X has, however, established reasonable cause for not making a timely S
election and is entitled to relief under § 1362(b)(5).
CONCLUSION
Based solely on the facts submitted and the representations made, and provided
that X otherwise qualifies as an S corporation, we conclude that X will be treated as an
S corporation effective D1. Within 60 days from the date of this letter, X should submit
a properly completed Form 2553, with a copy of this letter attached, to the appropriate
service center.
Except as specifically set forth above, no opinion is expressed or implied as to
the federal tax consequences of the facts described above under any other provision of
the Code. Specifically, no opinion is expressed concerning whether X is, in fact, 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.

                                     Sincerely,



                                     David R. Haglund
                                     David R. Haglund
                                     Chief, Branch 1
                                     Office of the Associate Chief Counsel
                                     (Passthroughs and Special Industries)

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

cc: