PLR 201147008: IRS permits a late S corporation election

Plain-English summary

A corporation intended to elect S corporation status but did not timely file Form 2553. The IRS found reasonable cause for the missed deadline and allowed the corporation to file the form within 120 days after the ruling letter. If it files as required, the election will be treated as timely effective on the specified date. The ruling did not decide whether the corporation otherwise qualified as an S corporation.

Ruling snapshot

• Question: May the corporation make a late S corporation election effective on the intended date?
• Outcome: Approved, subject to filing Form 2553 within 120 days.
• Key authorities: IRC § 1362(b)(5), with related rules in § 1362(a), § 1362(b)(1), and § 1362(b)(3); IRC § 6110(k)(3).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201147008
Third Party Communication: None
Release Date: 11/25/2011
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:3
PLR-107444-11
Date:
August 10, 2011

LEGEND

Company = ----------------------------
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Shareholders = ------------------------
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State = ------

Date = ------------------------

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

This letter responds to a letter dated February 14, 2011 written on behalf of Company requesting a ruling under § 1362(b)(5) of the Internal Revenue Code (Code).

FACTS

Company was incorporated in State on Date. Company’s Shareholders intended for Company to be an S corporation effective Date. However, Company’s Form 2553, Election by a Small Business Corporation, was not timely filed.

Company requests a ruling that it will be recognized as an S corporation effective Date.
PLR-107444-11
2

LAW AND ANALYSIS

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

Section 1362(b)(1) provides that an election under § 1362(a) may be made by a small business corporation for any taxable year at any time during the preceding taxable year, or 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 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 solely on the facts submitted and the representations made, we conclude that Company has established reasonable cause for failing to make an S corporation election in a timely manner. Thus, we conclude that Company is eligible for relief under § 1362(b)(5). Accordingly, if Company makes an election to be an S corporation effective Date by filing a completed Form 2553 with the appropriate service center within 120 days from the date of this letter, then such election will be treated as timely made. A copy of this letter should be attached to the Form 2553 filed with the service center.

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 Company is otherwise eligible to be an S corporation for federal tax purposes.

In accordance with a power of attorney on file with this office, we are sending a copy of this letter to Company’s authorized representative.
PLR-107444-11
3

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.

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,

Mary Beth Carchia
Senior Technician Reviewer, Branch 3
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosures (2)
A copy of this letter
A copy for § 6110 purposes