PLR 201208016: IRS grants relief for a late S corporation election

Plain-English summary

The IRS ruled that a company had reasonable cause for failing to file its S corporation election on time. The company asked to have the election treated as effective on its incorporation date under IRC § 1362(b)(5). The IRS approved the request, provided that the company files a completed Form 2553 with the appropriate service center within 120 days of the letter. The company must attach a copy of the ruling to that filing. The ruling did not decide whether the company otherwise qualified to be an S corporation.

Ruling snapshot

• Question: Can the company's late S corporation election be treated as timely made for its intended effective date?
• Outcome: Approved, subject to filing Form 2553 within 120 days
• Key authorities: IRC § 1362(b)(5)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201208016
Third Party Communication: None
Release Date: 2/24/2012
Date of Communication: Not Applicable
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:03
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PLR-130824-11
Date:
October 27, 2011

Legend

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

Shareholder1 = -------------------------------------------------------------------------------------------
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Shareholder2 = -------------------------------------------------------------------------------------------
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D1 = --------------------------

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

This letter responds to a letter dated July 12, 2011, and subsequent correspondence, 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 D1. X’s shareholders, Shareholder 1 and Shareholder 2, intended for X to be an S corporation effective D1. However, a Form 2553, Election by a Small Business Corporation, was not filed timely.

Law and Analysis
PLR-130824-11
2

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 (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 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 § 1362(a) 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 on the facts submitted and representations made, we conclude that X has established reasonable cause for failing to make an S corporation election. 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 with the appropriate service center a completed Form 2553 within 120 days following the date of this letter, containing an effective date of D1, the election shall 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.

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 X is otherwise eligible to be 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.

In accordance with a power of attorney on file with this office, a copy of this letter is being sent to your authorized representative.
PLR-130824-11
3

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

Enclosures (2):

Copy of this letter
Copy for § 6110 purposes

cc: