PLR 201121004: late S corporation election treated as timely after reasonable cause

Plain-English summary

The IRS granted a corporation relief for failing to timely elect S corporation status. The corporation was intended to be treated as an S corporation from its incorporation date, but the election was not filed on time. The IRS found reasonable cause and ruled that the corporation would be treated as an S corporation from that date, provided it otherwise qualified. The corporation was instructed to submit Form 2553 with the ruling attached within 120 days.

Ruling snapshot

• Question: Can the corporation's late S corporation election be treated as timely under IRC § 1362(b)(5)?
• Outcome: Approved.
• Key authorities: IRC § 1362(a), (b), and (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201121004
Third Party Communication: None
Release Date: 5/27/2011
Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:B01
PLR-137634-10
Date:
February 07, 2011

Legend:

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

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

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

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

This responds to the letter dated September 8, 2010, submitted on behalf of X, requesting relief under § 1362(b)(5) of the Internal Revenue Code.

Facts

According to the information submitted, X was incorporated under the laws of State on Date1. The shareholder of X intended that X be treated as an S corporation effective on Date1, but the election to be treated as an S corporation was not timely filed. Accordingly, X requests a ruling that it will be treated as an S corporation effective Date1.

Law and Analysis

Section 1362(a) provides that a small business corporation may elect to be an S corporation.

Section 1362(b) 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 §
PLR-137634-10
2

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 (A) 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 (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 (and § 1362(b)(3) shall not apply).

X did not timely file an election to be treated as an S corporation under § 1362(a). X has, however, established reasonable cause for not making a timely S election and is entitled to relief under § 1362(b)(5).

Conclusion

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 Date1. Within 120 days from the date of this letter, X should submit a properly completed Form 2553, with a copy of this letter attached, to the appropriate service center.

Except as specifically set forth above, no opinion is expressed or implied as to the federal tax consequences of the facts described above under any other provision of the Code. Specifically, no opinion is expressed concerning 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) provides that it may not be used or cited as precedent.

Pursuant to the power of attorney on file with this office, a copy of this letter will be sent to X’s authorized representative.

Sincerely,

Barbara J. Campbell
Barbara J. Campbell
Senior Technician Reviewer, Branch 1
Office of Associate Chief Counsel
(Passthroughs and Special Industries)
Enclosures (2):
Copy of this letter;
Copy for § 6110 purposes