PLR 201105021: IRS grants late S corporation election relief

Plain-English summary

A corporation asked for relief because the Service had no record of receiving its Form 2553, the election to be treated as an S corporation. The corporation's shareholder intended the S election to take effect when the corporation was incorporated. The IRS concluded that the corporation would be treated as an S corporation from that date, provided it otherwise qualified, and directed it to submit a completed Form 2553 within 120 days with a copy of the ruling attached. The ruling did not decide whether the corporation otherwise met the requirements for S corporation status.

Ruling snapshot

• Question: May the corporation's S election be treated as timely made under IRC § 1362(b)(5)?
• Outcome: Approved.
• Key authorities: IRC §§ 1361 and 1362, including § 1362(b)(5); IRC § 6110(k)(3).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Third Party Communication: None
Number: 201105021
Date of Communication: Not Applicable
Release Date: 2/4/2011
Person To Contact:
-------------------, ID No. -------------
Index Number: 1362.00-00
Telephone Number:
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Refer Reply To:
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Date: October 7, 2010

X: --------------------------------------------
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Date 1: ----------------------

State: --------

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

This letter responds to your letter dated July 20, 2010, and subsequent correspondence, requesting relief 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. The shareholder of X intended for X to be an S corporation for federal tax purposes effective Date 1. However, the Service has no record of receiving Form 2553, Election by a Small Business Corporation, for X.

Section 1361(a)(1) provides that the term “S corporation” means, with respect to any taxable year, a “small business corporation” for which an election under § 1362(a) is in effect for such year.

Section 1361(b)(1)(B) provides that an S corporation cannot have as a shareholder a person (other than an estate, a trust described in § 1361(c)(2), or an organization described in § 1361(c)(6)) who is not an individual.

Section 1362(a) provides that a small business corporation may elect to be an S Corporation.
PLR-131112-10
2

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 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.

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 Date 1. Within 120 days from the date of this letter, X should submit a properly completed Form 2553 effective Date 1, with a copy of this letter attached, to the appropriate service center.

Except as specifically set forth above, no opinion is expressed or implied concerning the federal tax consequences of the above-described facts under any other provision of the Code. In particular, no opinion is expressed or implied concerning whether X is otherwise eligible to be an S corporation for federal tax purposes.

This ruling is directed only to the taxpayer that requested it. Section 6110(k)(3) of provides that it may not be used or cited as precedent.

Pursuant to a power of attorney on file with this office, a copy of this letter is being sent to your authorized representatives.

Sincerely,

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

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