PLR 201147006: IRS grants late-election relief for S corporation status

Plain-English summary

A business asked the IRS to treat its late Form 2553 filing as timely so it could elect S corporation status effective on an earlier date. The IRS found that the business had reasonable cause for missing the election deadline under IRC § 1362(b)(5). It granted relief provided that the business filed a complete Form 2553, together with a copy of the ruling, within 120 days. The ruling did not decide whether the business otherwise qualified as a small business corporation.

Ruling snapshot

• Question: May the taxpayer's late S corporation election be treated as timely for the requested effective date?
• Outcome: Approved, subject to filing a complete Form 2553 within 120 days.
• Key authorities: IRC §§ 1361, 1362, and 6110.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Third Party Communication: None
Number: 201147006
Date of Communication: Not Applicable
Release Date: 11/25/2011
Person To Contact:
Index Number: 1362.01-03
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Telephone Number:
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Refer Reply To:

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CC:PSI:B02
--------------------------------------------- PLR-105941-11 Date:
August 09, 2011

Legend

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

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

Date2 = ----------------------

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

This responds to a letter dated November 18, 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 Date1 under the laws of State. X represents that X intended to be an S corporation effective Date2. However, a Form 2553, Election by a Small Business Corporation, was not 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-105941-11
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 Date2. Accordingly, provided that X makes an election to be an S corporation by filing a complete Form 2553 effective Date2, 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 Date2.

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,

Melissa C. Liquerman
Branch Chief, Branch 2
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

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