PLR 201138008: IRS grants relief for a late S corporation election

Plain-English summary

A corporation intended to be treated as an S corporation from its formation date but did not timely file the election. The corporation asked for relief under IRC § 1362(b)(5). The IRS found reasonable cause for the late election and ruled that the corporation would be treated as an S corporation from the requested date, provided it otherwise qualified. The corporation had 120 days from the ruling date to file Form 2553 with a copy of the ruling.

Ruling snapshot

• Question: Whether a corporation could receive relief for a late S corporation election effective as of its formation date.
• Outcome: Approved, subject to otherwise qualifying as an S corporation and filing Form 2553 within 120 days.
• Key authorities: IRC §§ 1362(a), 1362(b), 1362(b)(3), and 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201138008
Third Party Communication: None
Release Date: 9/23/2011
Date of Communication: Not Applicable
Person To Contact:
Index Number: 1362.01-03
-------------------, ID No. -------------
Telephone Number:
---------------------
-------------------------
Refer Reply To:
---------------------
CC:PSI:B01
---------------------------------------
PLR-110071-11
----------------------------
Date:
June 21, 2011

Legend:

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

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

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

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

This responds to the letter dated March 2, 2011, 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 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
PLR-110071-11
2

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.

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.
PLR-110071-11
3

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,

David R. Haglund
David R. Haglund
Chief, Branch 1
Office of Associate Chief Counsel
(Passthroughs and Special Industries)

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