PLR 201217013: IRS grants relief for a late S corporation election

Plain-English summary

An organization asked the IRS to recognize it as an S corporation after it failed to timely file Form 2553. The IRS found that the organization had reasonable cause for missing the filing deadline. It granted relief under section 1362(b)(5), provided that the organization otherwise qualified as a subchapter S corporation and submitted a properly completed Form 2553 with a copy of the ruling within 120 days. The ruling did not address whether the organization otherwise qualified as an S corporation.

Ruling snapshot

• Question: Could the organization make a late election to be treated as an S corporation effective on the requested date?
• Outcome: Approved
• Key authorities: IRC §§ 1362(a), 1362(b), 1362(b)(2), 1362(b)(3), 1362(b)(5), and 6110.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201217013
Third Party Communication: None
Release Date: 4/27/2012
Date of Communication: Not Applicable
Index Number: 1362.00-00
Person To Contact:
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Refer Reply To:
CC:PSI:B01
PLR-132994-11
December 23, 2011

LEGEND

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

D = -----------------

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

This responds to a letter dated June 27, 2011, submitted on behalf of X, requesting relief under § 1362(b)(5) of the Internal Revenue Code.

FACTS

According to the information submitted, X was incorporated on D under the laws of State. X intended to be treated as an S corporation effective D, but the Form 2553, Election by a Small Business Corporation, was not timely filed. Accordingly, X requests a ruling that it will be treated as an S corporation effective D.

LAW AND ANALYSIS

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)(2) provides 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

PLR-132994-11
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corporation for the year in which the election is made. Section 1362(b)(3) provides that if the election is made after the first two and one-half months of a corporation’s taxable year, then the corporation will not be 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 no election is made pursuant to § 1362(a), or, if made, the election is made after the date prescribed for making such an election, and the Secretary determines there was reasonable cause for the failure to timely make the election, then the Secretary may treat such election as timely made for such taxable year and effective as of the first day of that year.

X did not file a timely election to be treated as an S corporation under § 1362(a) effective D. X has, however, established reasonable cause for not making a timely election and is entitled to relief under § 1362(b)(5).

CONCLUSION

Based solely on the facts submitted and representations made, and provided that X otherwise qualifies as a subchapter S corporation, we conclude that X will be recognized as an S corporation effective D if, within 120 days from the date of this letter, X submits a properly completed Form 2553, with a copy of this letter attached, to the appropriate service center.

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. Specifically, no opinion is expressed or implied concerning whether X otherwise qualifies as an S corporation for federal tax purposes.

This rule is directed only to the taxpayer requesting it. Section 6110(k)(3) provides that it may not be used or cited as precedent.

Sincerely,

Joy C. Spies
Joy C. Spies
Acting Senior Technician Reviewer
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)
Enclosures (2)

Copy of this letter
Copy of this letter for section 6110 purposes