PLR 201135019: IRS grants late S corporation election relief

Plain-English summary

The corporation asked the IRS to recognize its S corporation election effective on a specified date, even though it did not timely file Form 2553. The corporation's sole shareholder intended for it to be an S corporation as of that date. The IRS concluded that the corporation established reasonable cause for the late filing and was eligible for relief under IRC § 1362(b)(5). It treated the election as timely made if the corporation filed a completed Form 2553 with the appropriate service center within 120 days of the letter date. The ruling did not express an opinion on whether the corporation otherwise qualified as an S corporation.

Ruling snapshot

• Question: Could the corporation receive relief for its late S corporation election and make the election effective on the specified date?
• Outcome: Approved
• Key authorities: IRC §§ 1362 and 6110

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201135019
Third Party Communication: None
Release Date: 9/2/2011
Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
----------------------------------
--------------, ID No. -----------------
----------------------------------
Telephone Number:
-------------------
---------------------
------------------------------------------ Refer Reply To:
CC:PSI:B03
PLR-106778-11
Date: May 20, 2011

LEGEND

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

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

Shareholder = ---------------------------------------------------------------------------------------------
-------------------------

D1 = --------------------------

D2 = ----------------------

Dear -------------------

This letter responds to a letter dated January 31, 2011, and subsequent correspondence, submitted on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

FACTS

X was incorporated under State law on D1. X's sole shareholder, Shareholder, intended for X to be an S corporation effective D2. However, a Form 2553, Election by a Small Business Corporation, was not filed timely. X requests a ruling that it will be recognized as an S corporation effective D2.

LAW AND ANALYSIS

Section 1362(a)(1) provides that a small business corporation may elect to be an S corporation.

2

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.

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 on the facts 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 one hundred twenty (120) days following the date of this letter, containing an effective date of D2, 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, we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter. Specifically, we express or imply no opinion concerning whether X is otherwise eligible to be an S corporation for federal tax purposes.

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

3

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

Richard T. Probst
Senior Technician Reviewer, Branch 3
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosures (2):

Copy of this letter
Copy for § 6110 purposes