PLR 1046006: corporation granted relief for late S corporation election

Plain-English summary

The IRS ruled that a corporation had reasonable cause for failing to timely file Form 2553 to elect S corporation status. The corporation's sole shareholder intended the election to be effective on a redacted date, but the form was not filed on time. The corporation could receive relief under section 1362(b)(5) if it filed a completed Form 2553 within 120 days after the ruling date and attached a copy of the ruling. The IRS did not decide whether the corporation otherwise qualified as an S corporation. The ruling was limited to the submitted facts and representations.

Ruling snapshot

• Question: May the corporation make a late S corporation election effective on the intended date?
• Outcome: Approved
• Key authorities: IRC §§ 1362(a), 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: 201046006 Third Party Communication: None
Release Date: 11/19/2010 Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
------------------ -----------------------, ID No. -------------------
-------------------------------- ---------------------------------------------------
----------------------- Telephone Number:
------------------------------------ ---------------------
Refer Reply To:
CC:PSI:B03
PLR-113871-10
Date:
August 09, 2010

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

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

Date 1 = -------------------

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

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

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

  This letter responds to a letter dated March 23, 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.

                                       LAW AND ANALYSIS

  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.
PLR-113871-10 2

    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 timely 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.
PLR-113871-10 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/

                                 Mary Beth Carchia
                                 Senior Technician Reviewer, Branch 3
                                 Office of the Associate Chief Counsel
                                 (Passthroughs & Special Industries)

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

cc: