PLR 1050015: IRS allowed a late S corporation election

Plain-English summary

The IRS ruled that a corporation had reasonable cause for failing to timely file its S corporation election. The corporation was formed under state law, its sole shareholder intended S corporation treatment from the incorporation date, and Form 2553 was filed late. The IRS allowed the corporation to be recognized as an S corporation effective on that date if it filed a completed Form 2553 within 120 days of the ruling. The ruling did not address whether the corporation was otherwise eligible for S corporation status.

Ruling snapshot

• Question: Could the corporation make a late S corporation election effective on its incorporation 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: 201050015 Third Party Communication: None
Release Date: 12/17/2010 Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
------------------------------------------------------------ ------------------------, ID No. ------------------
---------------- ----------------------------------------------------
----------------------------------------------- Telephone Number:
------------------------------------ ---------------------
-------------------------- Refer Reply To:
CC:PSI:B03
PLR-116891-10
Date:
August 31, 2010

                                                 Legend

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

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

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

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

 This letter responds to a letter dated March 10, 2010, 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 sole

shareholder intended that Company be treated as an S corporation as of D1. However,
a Form 2553, Election by a Small Business Corporation, was not timely filed. Company
requests a ruling that it will be recognized as an S corporation effective D1.

                                          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
PLR-116891-10 2

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 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 timely make an election to be
an S corporation. Provided that Company otherwise qualifies as an S corporation, we
conclude that Company will be recognized as an S corporation effective D1, if Company
files a completed Form 2553 effective D1 with the appropriate service center within 120
days following the date of this letter. A copy of this letter should be attached to the
Form 2553. 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 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) of

the Code 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
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.
PLR-116891-10 3

     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/

                                    Tara P. Volungis
                                    Acting Chief, Branch 3
                                    Office of the Associate Chief Counsel
                                    (Passthroughs & Special Industries)

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

cc: