PLR 201105028: Late S corporation election may be treated as timely after reasonable-cause showing

Plain-English summary

The IRS considered a corporation that intended to elect S corporation status but did not timely file Form 2553. The corporation requested relief under § 1362(b)(5) and represented that it had reasonable cause for the late election. The IRS concluded that the corporation had established reasonable cause and allowed the election to be treated as timely, provided that the corporation filed a complete Form 2553 and a copy of the ruling with the appropriate service center within 120 days. The ruling did not decide other issues, including whether the corporation qualified as a small business corporation under § 1361(b).

Ruling snapshot

• Question: May a late S corporation election be treated as timely because of reasonable cause?
• Outcome: Approved.
• Key authorities: IRC §§ 1361(b), 1362(a), 1362(b), and 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Third Party Communication: None
Number: 201105028
Date of Communication: Not Applicable
Release Date: 2/4/2011
Person To Contact:
Index Number: 1362.01-03
------------------------, ID No. -------------
Telephone Number:
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----------------------------------------- Refer Reply To:

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CC:PSI:B02
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PLR-136527-10
Date:
October 18, 2010

Legend

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

State = ---------

Date = ---------------------

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

This responds to a letter dated July 29, 2010, and subsequent correspondence, submitted on behalf of X, requesting relief under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was formed on Date under the laws of State. X represents that X intended to be an S corporation effective Date. 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 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.
PLR-136527-10
2

Section 1362(b)(5) provides that if: (A) an election under § 1362(a) is made for any taxable year after the date prescribed by § 1362(b) for making such election for such taxable year or no such 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, then the Secretary may treat such an election as timely made for such taxable year.

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

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 was or is a small business corporation under
§ 1361(b) of the Code.

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.

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,

Charlotte Chyr
Senior Technician Reviewer, Branch 2
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

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