PLR 201049019: Corporation receives relief for a late S election

Plain-English summary

This ruling concerns a corporation whose shareholder intended S corporation treatment effective on the corporation's incorporation date, but whose S election was filed late. The IRS found reasonable cause for the late filing and granted relief under IRC § 1362(b)(5). The corporation will be treated as an S corporation from the requested effective date if it otherwise qualifies and submits a completed Form 2553 with the ruling attached within 120 days. The ruling did not determine whether the corporation otherwise qualifies as an S corporation.

Ruling snapshot

• Question: May the corporation receive relief for its late S corporation election?
• Outcome: approved
• Key authorities: IRC § 1362.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201049019
Third Party Communication: None
Release Date: 12/10/2010
Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
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Refer Reply To:
CC:PSI:B01
PLR-126043-10
Date:
August 17, 2010

LEGEND:

X = --------------------------
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D1 = -------------------------

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

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

This responds to the letter dated May 15, 2010 and subsequent correspondence, 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 shareholder of X intended that X be treated as an S corporation for federal tax purposes 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
PLR-126043-10
2

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 (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) effective D1. 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 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.

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.

Pursuant to the power of attorney on file with this office, a copy of this letter will be sent to X’s authorized representatives.
Sincerely,
Cornelia J. Schnyder
Cornelia J. Schnyder
Senior Technical Reviewer, Branch 1
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)
Enclosures (2)
Copy of this letter
Copy for § 6110 purposes