PLR 201207004: IRS granted relief for a late S corporation election

Plain-English summary

The IRS granted a corporation 120 days to file Form 2553 and have its S corporation election treated as timely for its first taxable year. The corporation had been eligible to elect S corporation status, and its shareholders intended the election to begin when the corporation was incorporated, but Form 2553 was not timely filed. Based on the submitted facts and representations, the IRS found reasonable cause for the late filing under IRC § 1362(b)(5). The ruling did not express an opinion on whether the corporation otherwise qualified as an S corporation.

Ruling snapshot

• Question: Could the corporation make a late S corporation election effective as of its incorporation date?
• Outcome: approved
• Key authorities: IRC §§ 1362(a), 1362(b), 1362(b)(5), and 6110(k)(3); Form 2553

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201207004
Third Party Communication: None
Release Date: 2/17/2012
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:B02
PLR-139707-11
Date:
October 25, 2011

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

Date = ----------------------
1

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

This responds to a letter dated August 21, 2011, and subsequent correspondence submitted on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated in State on Date 1. X was eligible to elect S corporation treatment effective Date 1 and X’s shareholders intended for X to be an S corporation effective as of the date of incorporation. 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. Generally, 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. Section 1362(b)(3) provides that if an S election is made after the first two and one-half months of a corporation's taxable year, then the corporation will not be

PLR-139707-11
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treated as an S corporation until the taxable year after the year in which the S election is made.

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 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, then the Secretary may treat the election as timely made for such taxable year and § 1362(b)(3) shall not apply.

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 Date 1. Accordingly, provided that X makes an election to be an S corporation by filing a completed Form 2553 with the appropriate service center effective Date 1 within 120 days following the date of this letter, then such election will be treated as timely made for X's taxable year beginning Date 1. A copy of this letter should be attached to the Form 2553.

Except as specifically set forth above, no opinion is expressed or implied as to the federal income tax consequences of the transaction 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) of the Code provides that it may not be used or cited as precedent.

Sincerely,

Bradford R. Poston
Senior Counsel, Branch 2
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

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