PLR 1104017: IRS grants relief for a late S corporation election

Plain-English summary

A limited liability company asked the IRS to recognize a late S corporation election effective from its requested date. The company intended to file Form 2553 but did not file it on time because of inadvertence. The IRS concluded that the company established reasonable cause and was eligible for relief under IRC § 1362(b)(5). It ruled that the election would be treated as timely if the company filed Form 2553 with the appropriate service center within 120 days of the letter date, with the requested effective date. The ruling did not address whether the company otherwise qualified as an S corporation.

Ruling snapshot

• Question: May the company make a late S corporation election effective on 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: 201104017 Third Party Communication: None
Release Date: 1/28/2011 Date of Communication: Not Applicable
Person To Contact:
Index Number: 1362.01-03 --------------, ID No. -----------------
Telephone Number:
---------------------
---------------------------------------------- Refer Reply To:
------------------------------ CC:PSI:B03
-------------------------- PLR-123587-10
------------------------------------ Date:
October 04, 2010

X = -----------------------------------------------------------------------------------------------------
-----------------------

State = ---------

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

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

   This responds to a letter dated May 25, 2010, and subsequent correspondence,

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

                                                    Facts

   X was formed on Date 1 as a limited liability company under the laws of State. X

intended to file a Form 2553, Election by a Small Business Corporation, effective
Date 1. Due to inadvertence, X’s Form 2553 was not filed timely. Accordingly, X
requests a ruling that it will be recognized as an S corporation effective Date 1.

                                              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 (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.
PLR-123587-10 2

   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 § 1362(a) 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 information submitted and representations made, we

conclude that X has established reasonable cause for failing to timely make an S
corporation election. Thus, we conclude that X is eligible for relief under § 1362(b)(5).
Accordingly, if X makes an election to be an S corporation by filing with the appropriate
service center a completed Form 2553 within 120 days following the date of this letter,
containing an effective date of Date 1, the election shall 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, no opinion is expressed or implied concerning
whether X otherwise qualifies as 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.

   In accordance with the power of attorney on file with this office, a letter is being

sent to the taxpayer's authorized representatives.
PLR-123587-10 3

  The ruling contained in this letter is based upon information and representations

made 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.

                                  Sincerely,

                                  Associate Chief Counsel
                                  (Passthroughs & Special Industries)

                                    /s/
                           By:
                                  Danielle M. Grimm
                                  Acting Senior Technician Reviewer
                                  Branch 3
                                  (Passthroughs and Special Industries)

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

cc: