PLR 201147017: IRS permits a late S corporation election

Plain-English summary

A corporation asked the IRS to recognize a late election to be treated as an S corporation. Its sole shareholder intended the S corporation status to begin on a specified date, but Form 2553 was not timely filed. The IRS found reasonable cause for the missed deadline and allowed the corporation to make the election within 120 days after the ruling letter. The relief was conditioned on the corporation and shareholder filing consistent tax returns within that period.

Ruling snapshot

• Question: May the corporation make a late S corporation election effective on the intended date?
• Outcome: Approved, subject to the 120-day filing and consistent-return conditions.
• 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: 201147017
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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Refer Reply To:
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CC:PSI:B03
PLR-123851-11
Date: July 29, 2011

LEGEND

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

A = ---------------------

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

Date = ------------------
1
Date = ---------------------
2
Year = -------
1
Year = -------
2

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

This letter responds to a letter dated June 2, 2011, 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 Date 1. X’s sole shareholder, A, intended for X to be an S corporation effective Date 2. However, X’s Form 2553, Election by a Small Business Corporation, was not timely filed.
PLR-123851-11
2

LAW AND ANALYSIS

Section 1362(a)(1) provides that, except as provided in § 1362(g), a small business corporation may elect, in accordance with the provisions of § 1362, 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 (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) a small business corporation makes an election under § 1362(a) for any taxable year, and (B) 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 (A) 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 (B) the Secretary determines that there was reasonable cause for the failure to timely make the election, 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 representations made, we conclude that X has established reasonable cause for failing to timely make an S corporation election effective Date 2. 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 a completed Form 2553 with the appropriate service center effective Date 2 within 120 days following 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. A copy is enclosed for that purpose.

This ruling is contingent upon X and A filing income tax returns for Year 1 and Year 2 consistent with the treatment of X as an S corporation. The returns must be filed within 120 days following the date of this letter and a copy of this letter should be attached to the returns. If X or A fail to treat themselves as described above, this ruling is null and void.

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.
PLR-123851-11
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.

In accordance with a power of attorney on file with this office, we are sending a copy of this letter to your authorized representative.

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):

A copy of this letter
A copy for § 6110 purposes