PLR 1042006: IRS grants relief for an untimely S corporation election

Plain-English summary

The IRS considered a corporation's request for relief after its S corporation election was not timely filed. It found that the corporation had established reasonable cause for the failure and was entitled to relief under IRC § 1362(b)(5). The corporation would be recognized as an S corporation effective on the requested date if it filed Form 2553 with a copy of the ruling within 120 days. The corporation and its sole shareholder also had to file federal tax returns consistent with S-corporation treatment by the earlier of 120 days from the ruling date or the expiration of the applicable limitations period. The ruling did not express an opinion on other S-corporation eligibility.

Ruling snapshot

• Question: Can the corporation's late S election be treated as timely after a failure supported by reasonable cause?
• Outcome: Approved
• Key authorities: IRC §§ 1362(a), 1362(b)(2), 1362(b)(3), 1362(b)(5), and 6110(k)(3)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201042006 Third Party Communication: None
Release Date: 10/22/2010 Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
----------------------------------------------- --------------, ID No. -----------------
------------------------- Telephone Number:
-------------------------- ---------------------
------------------------------------ Refer Reply To:
CC:PSI:B01
PLR-104743-10
Date:
July 12, 2010

LEGEND

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

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

D2 = ----------------------

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

Years = ----------------------------------------

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

This responds to a letter dated November 13, 2009, submitted on behalf of X,
requesting relief under § 1362(b)(5) of the Internal Revenue Code.

FACTS

According to the information submitted, X was incorporated on D1 under the laws of
State. The sole shareholder of X intended that X be treated as an S corporation for
federal tax purposes effective D2, 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 D2.

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.
PLR-104743-10 2

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.

Section 1362(b)(5) provides that if no election is made pursuant to § 1362(a), or, if
made, the election is made after the date prescribed for making such an election, and
the Secretary determines there was reasonable cause for the failure to timely make the
election, then the Secretary may treat such election as timely made for such taxable
year, effective as of the first day of that year, and § 1362(b)(3) shall not apply.

X did not file a timely election to be treated as an S corporation under § 1362(a)
effective D2. X has, however, established reasonable cause for not making a timely
election and is entitled to relief under § 1362(b)(5).

CONCLUSION

Based solely on the facts submitted and representations made, and provided that X
otherwise qualifies as a subchapter S corporation, we conclude that X will be
recognized as an S corporation effective D2 if, within 120 days from the date of this
letter, X submits a properly completed Form 2553, with a copy of this letter attached, to
the appropriate service center.

This ruling is contingent on X and its sole shareholder, filing, within the earlier of 120
days from date of the letter or the expiration of the applicable period of limitations,
federal tax returns consistent with X as an S corporation for Years.

Except as expressly provided herein, no opinion is expressed or implied concerning the
federal tax consequences of the facts discussed or referenced in this letter under any
other provision of the Code. Specifically, no opinion is expressed or implied concerning
whether X otherwise qualifies as an S corporation for federal tax purposes.
PLR-104743-10 3

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,


                                  Faith P. Colson
                                  Faith P. Colson
                                  Senior Counsel, Branch 1
                                  Office of the Associate Chief Counsel
                                  (Passthroughs & Special Industries)

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

cc: