PLR 1047006: IRS grants relief for a late S corporation election

Plain-English summary

The IRS considered a company's request for relief after it failed to timely file Form 2553 to elect S corporation status. The company said its shareholders intended the election to be effective on a specified date, relied on a qualified tax professional, and reported consistently with the intended S corporation status. The IRS found reasonable cause for the late filing and granted relief under section 1362(b)(5). The company had 120 days from the letter date to file a completed Form 2553, and the election would then be treated as timely made.

Ruling snapshot

• Question: May the company make a late S corporation election effective as of the requested date?
• Outcome: Approved
• Key authorities: IRC § 1362(b)(5)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201047006 Third Party Communication: None
Release Date: 11/26/2010 Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
------------------------------- ------------------------, ID No. ------------------
----------------------------- ----------------------------------------------------
-------------------------- Telephone Number:
---------------------------------------- ---------------------
Refer Reply To:
CC:PSI:B03
PLR-107786-10
Date:
August 05, 2010

Legend

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

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

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

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

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

  This letter responds to a letter dated February 4, 2010, and subsequent

correspondence submitted on behalf of Company, requesting a ruling under
§ 1362(b)(5) of the Internal Revenue Code.

                                              Facts

    Company was incorporated under the laws of State on D1. Company’s

shareholders intended Company to be treated as an S corporation as of D2 and relied
upon a qualified tax professional to file the election. However, a Form 2553, Election by
a Small Business Corporation, was not timely filed for Company. Company represents
that it has reported consistently with Company’s intended status as an S Corporation.
PLR-107786-10 2

                                 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.

    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 following taxable year, then such 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 timely make such election, the Secretary may treat the election
as timely made for the taxable year (and § 1362(b)(3) shall not apply).

                                    Conclusion

   Based solely 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 D2 within 120 days
following the date of this letter, we rule that the election shall be treated as timely made.
A copy of this letter should be attached to Form 2553. 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, no opinion is expressed or implied as to 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.

  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-107786-10 3

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.

     In accordance with the power of attorney on file with this office, a copy of this

letter is being sent to your authorized representative.

                                    Sincerely,

                                     /s/

                                    James A. Quinn
                                    Senior Counsel, Branch 3
                                    Office of the Associate Chief Counsel
                                    (Passthroughs & Special Industries)

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