PLR 1221007: IRS grants relief for a late S corporation election

Plain-English summary

The IRS granted relief to a corporation that intended to elect S corporation status but did not file the election on time. The IRS found that the corporation had reasonable cause for the late filing under IRC § 1362(b)(5). The corporation would be recognized as an S corporation effective on the requested date if it submitted a completed Form 2553 with a copy of the ruling letter within 120 days. The ruling did not address whether the corporation otherwise qualified as an S corporation.

Ruling snapshot

• Question: Could the corporation's late S corporation election be treated as timely made under § 1362(b)(5)?
• Outcome: Approved
• Key authorities: IRC § 1362(b)(5); Form 2553

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201221007 Third Party Communication: None
Release Date: 5/25/2012 Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
--------------------------------- --------------, ID No. -----------------
------------------------------------------------------ Telephone Number:
------------------------ ---------------------
------------------------------ Refer Reply To:
CC:PSI:B01
PLR-139682-11
Date:
February 24, 2012

LEGEND

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

D1 = -----------------------

D2 = ----------------------

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

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

This responds to a letter dated August 15, 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 D1 under the laws of
State. X intended to be treated as an S corporation for Federal tax purposes effective
D2, but the proper election was not timely filed.

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-139682-11 2

corporation for the year in which the election is made. 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 D2. 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 D2 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 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 the power of attorney on file with this office, a copy of this letter is
being sent to the taxpayer’s authorized representative.

                                    Sincerely,

                                    Joy Spies
                                    Joy Spies
                                    Acting Senior Technician Reviewer, Branch 1
                                    Office of the Associate Chief Counsel
                                    (Passthroughs & Special Industries)

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