PLR 201122006: IRS grants relief for a late S corporation election

Plain-English summary

The shareholders of a corporation intended for it to be treated as an S corporation from its incorporation date, but the election was filed late. The IRS determined that the corporation had reasonable cause for missing the deadline and granted relief under IRC § 1362(b)(5). The corporation will be recognized as an S corporation effective on the intended date, provided it otherwise qualifies, if it files Form 2553 and attaches the ruling within 120 days.

Ruling snapshot

• Question: May the corporation make a late S corporation election effective on its intended date?
• Outcome: Approved.
• Key authorities: IRC §§ 1362, 6110.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201122006
Third Party Communication: None
Release Date: 6/3/2011
Date of Communication: Not Applicable
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:B01
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Date:
February 10, 2011

Legend:

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

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

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

This letter is in response to your request, on behalf of X, dated July 21, 2010, for a written determination granting relief under section 1362(b)(5) of the Internal Revenue Code.

Facts

X was incorporated under the laws of State on Date 1. The shareholders of X intended that X elect to be treated as an S corporation effective Date 1. However, the election to be treated as an S corporation, effective Date 1, was not timely filed.

Law and Analysis

Section 1362(a) of the Code provides that a small business corporation can elect to be treated as an S corporation.
PLR-137710-10
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Section 1362(b) of the Code provides guidance on when the S election becomes effective. If an S election is made within the first two and one-half months of a corporation’s taxable year, then that corporation will be treated as an S corporation for the year in which the election was made. If the corporation makes an election after the first two and one-half months of a corporation=s taxable year, then the corporation will generally not be treated as an S corporation until the following taxable year.

Section 1362(b)(5) of the Code provides that if no election is made pursuant to section 1362(a), or if the election is made after the date prescribed for making such an election, and the Secretary determined reasonable cause existed for the failure to timely make the election, then the Secretary can treat such an election as being timely made for that taxable year and effective as of the first day of that taxable year.

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

Conclusion

Based solely on the facts submitted and representations made, and provided that X otherwise qualifies as a subchapter S corporation, we conclude that X will be recognized as an S corporation effective Date 1. An original Form 2553 along with a copy of this letter must be forwarded to the relevant Service Center within 120 days from the date of this letter.

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.

This ruling is directed only to the taxpayer(s) requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.
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Pursuant to the Power of Attorney on file with this office, we will send a copy of this ruling to X’s representative.

Sincerely,

Faith P. Colson
Faith P. Colson
Senior Counsel, Branch 1
(Passthroughs & Special Industries)

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

cc: