PLR 201210025: Late S corporation election permitted for reasonable cause

Plain-English summary

The IRS ruled for a corporation that intended to elect S corporation status but did not timely file Form 2553. Based on the submitted facts and representations, the IRS concluded that the corporation established reasonable cause for the late election. The election could be treated as timely if the corporation filed a completed Form 2553 with the appropriate service center within 120 days after the letter date and attached a copy of the ruling. The ruling expressed no opinion on other federal tax consequences, including whether the corporation qualified as a small business corporation.

Ruling snapshot

• Question: May a corporation's late S corporation election be treated as timely because of reasonable cause?
• Outcome: Approved, subject to filing Form 2553 within the stated period.
• Key authorities: IRC § 1362(a); IRC § 1362(b); IRC § 1362(b)(5); IRC § 1361(b).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201210025
Third Party Communication: None
Release Date: 3/9/2012
Date of Communication: Not Applicable
Person To Contact:
Index Number: 1362.01-03
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ID No. -------------
Telephone Number:
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Refer Reply To:
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CC:PSI:B02
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PLR-143997-11
Date:
November 02, 2011

Legend

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

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

This responds to a letter dated October 20, 2011 submitted on behalf of X by X’s authorized representative, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was formed in State on Date. X’s shareholder intended for X to be an S corporation effective Date. However, no Form 2553, Election by a Small Business Corporation, was timely filed for X. Accordingly, X requests a ruling that it will be treated as an S corporation effective Date.

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) 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 section 1362(b)(3), an S election made after the first two and one-half months of a corporation’s taxable year, results in the corporation not being treated as an S corporation until the taxable year following the year in which the S election is filed.
PLR-143997-11
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 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.

X did not timely file an election under § 1362(a) to be treated as an S corporation for X’s taxable year beginning Date. Based solely on the facts and the representations submitted, we conclude that X established reasonable cause for failing to make a timely election to be an S corporation effective Date. 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 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. A copy of this letter should be attached to the Form 2553.

Except as expressly set forth above, no opinion is expressed or implied concerning the federal 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).

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.

Pursuant to a power of attorney on file with this office, a copy of this letter is being sent to X’s authorized representative.

Sincerely,

Bradford Poston
Senior Counsel, Branch 2
(Passthroughs & Special Industries)

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

cc: