PLR 201102043: IRS allows a late S corporation election after reasonable cause was established

Plain-English summary

The taxpayer intended for its corporation to be treated as an S corporation beginning on a specified date, but it did not timely file Form 2553. The IRS concluded that the corporation had reasonable cause for the late election under IRC § 1362(b)(5). The IRS treated the election as timely for the specified effective date, provided the corporation filed a completed Form 2553 with the appropriate service center within 120 days after the letter date. The ruling did not express an opinion on other federal income tax consequences, including whether the corporation otherwise qualifies as an S corporation.

Ruling snapshot

• Question: May the corporation make a late S corporation election effective as of the intended date?
• Outcome: approved
• Key authorities: IRC §§ 1362(a), 1362(b), and 1362(b)(5)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201102043
Third Party Communication: None
Release Date: 1/14/2011
Date of Communication: Not Applicable
Person To Contact:
Index Number: 1362.01-03
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Telephone Number:
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Refer Reply To:
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CC:PSI:B02
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PLR-123031-10
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Date:
September 23, 2010

X = -----------------------------------------------------------------------------------------------------
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A = -----------------------------------------------------------------------------------------------------
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State = -------------

Date = --------------------------
1
Date = ----------------------
2

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

This responds to a letter dated May 6, 2010, and subsequent correspondence, submitted on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated on Date 1 under the laws of State. A is the sole shareholder of X. X represents that it was intended to be treated as an S corporation effective Date 2. However, no Form 2553, Election by a Small Business Corporation, was timely filed for X.

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 corporation will be effective.
Section 1362(b)(2) provides in relevant part that if an S election is made within the first

PLR-123031-10
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two and one-half months of a corporation’s taxable year, then the corporation will be treated as an S corporation for the year in which the election is made. Section 1362(b)(3) provides that if an S election is made after the first two and one-half months of a corporation’s taxable year, then the corporation will not be treated as an S corporation until the taxable year after the year in which the S election is made.

Section 1362(b)(5) provides that if (1) an election under § 1362(a) is made for any taxable year 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 (2) 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 such taxable year and § 1362(b)(3) shall not apply.

Based solely on the facts and the representations submitted, we conclude that X has established reasonable cause for failing to make a timely election to be an S corporation effective Date 2. Accordingly, provided that X makes an election to be an S corporation by filing a completed Form 2553 with the appropriate service center effective Date 2 within 120 days following the date of this letter, then such election will be treated as timely made for Date 2. A copy of this letter should be attached to the Form 2553.

Except as expressly provided herein, no opinion is expressed or implied concerning the federal income tax consequences of the facts described above under any other provision of the Code, including 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) of the Code provides that it may not be used or cited as precedent.

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

Sincerely,

Bradford R. Poston
Senior Counsel, Branch 2
Office of Associate Chief Counsel
(Passthroughs & Special Industries)

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

cc: