PLR 1050024: Late S corporation election treated as timely

Plain-English summary

The IRS granted relief to a company whose Form 2553 was not filed by the deadline for an intended S corporation election. It found that the company had reasonable cause for the late filing under IRC § 1362(b)(5). The election would be treated as timely if the company filed a completed Form 2553 with the appropriate service center within 120 days and attached a copy of the ruling. The ruling did not decide whether the company otherwise qualified as an S corporation.

Ruling snapshot

• Question: Could the company’s late S corporation election be treated as timely because it had reasonable cause for missing the filing deadline?
• 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: 201050024 Third Party Communication: None
Release Date: 12/17/2010 Date of Communication: Not Applicable
Index Number: 1362.01-00, 1362.01-03
Person To Contact:
---------------------------------------------------- ---------------------, ID No. -----------------
---------------------------------- Telephone Number:
---------------------------- ---------------------
------------------------------------ Refer Reply To:
CC:PSI:B03
PLR-132505-10
Date:
August 27, 2010

                                                   LEGEND

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

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

Date1 = ----------------------

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

This letter responds to a letter dated August 2, 2010, written on behalf of Company,
requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

                                                   FACTS

Company was incorporated in State on Date1. Company's shareholders intended for
Company to be an S corporation effective Date1. However, Company's 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
Date1.

                                        LAW AND ANALYSIS

Section 1362(a)(1) provides that a small business corporation may elect 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 at any time during the preceding taxable year,
or at any time during the taxable year and on or before the 15th day of the third month
PLR-132505-10 2

of the taxable year.

Section 1362(b)(3) provides that if a small business corporation makes an election
under § 1362(a) for any taxable year, and 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 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 election is made for any taxable year,
and the Secretary determines that there was reasonable cause for the failure to timely
make the election, then 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 the representations made, we conclude that
Company has established reasonable cause for failing to make an S corporation
election in a timely manner. Thus, we conclude that Company is eligible for relief under
§ 1362(b)(5). Accordingly, if Company makes an election to be an S corporation
effective Date1 by filing a completed Form 2553 with the appropriate service center
within 120 days from the date of this letter, then such election will 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, 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, 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) of the Code
provides that it may not be used or cited as precedent.

The rulings contained in this letter are based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
PLR-132505-10 3

by an appropriate party. While this office has not verified any of the material submitted
in support of the request for rulings, it is subject to verification on examination.

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

                                  Sincerely,

                                   /s/

                                  Tara Volungis
                                  Acting Branch Chief, Branch 3
                                  (Passthroughs & Special Industries)

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

cc: