Company granted relief for a late S corporation election

Plain-English summary

The IRS found reasonable cause for a company whose sole shareholder intended an S corporation election but whose Form 2553 was not timely filed. The company may file a completed Form 2553 within 120 days after the ruling letter, and the election will be treated as timely made for the redacted effective date. The relief is granted under IRC § 1362(b)(5). The ruling does not decide whether the company is otherwise eligible to be an S corporation.

Ruling snapshot

• Question: Could the company receive relief for its late S corporation election?
• Outcome: Approved
• Key authorities: IRC §§ 1362 and 6110

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201043007
Third Party Communication: None
Release Date: 10/29/2010
Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:B03
PLR-107320-10
Date:
July 20, 2010

Company = ---------------------------------------------------------------------------------------------
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Shareholder = ---------------------------------------------------------------------------------------------
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Date 1 = --------------------------

Date 2 = ----------------

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

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

This letter responds to a letter dated January 27, 2010, and subsequent correspondence, submitted on behalf of Company by Company’s authorized representative, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

FACTS

Company was incorporated on Date 1 under State law. Shareholder, Company’s sole shareholder, intended for Company to be an S corporation effective Date 2. However, Company’s Form 2553, Election by a Small Business Corporation, was not timely filed. Company requests a ruling that it be permitted to file a late S corporation election effective Date 2.

LAW AND ANALYSIS

PLR-107320-10
2

Section 1362(a)(1) 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 on the facts submitted and representations made, we conclude that Company has established reasonable cause for failing to make an S corporation election. Thus, we conclude that Company is eligible for relief under § 1362(b)(5). Accordingly, if Company makes an election to be an S corporation by filing with the appropriate service center a completed Form 2553 effective Date 2, 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, 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.

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.

In accordance with a power of attorney on file with this office, we are sending a copy of this letter to your authorized representative.

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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