PLR 1223013: IRS allows a late S corporation election

Plain-English summary

The IRS allowed a corporation to make a late S corporation election effective on its intended date. The corporation had filed Form 1120S but had not timely filed Form 2553, and the IRS found reasonable cause for the failure. The corporation must file Form 2553 within 120 days and the corporation and its shareholders must file any necessary returns consistent with the election. The IRS did not decide whether the corporation otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Could the corporation make a late S corporation election effective on its intended date?
• Outcome: Approved, contingent on filing Form 2553 and consistent returns within the required period.
• Key authorities: IRC §§ 1361 and 1362, including § 1362(b)(5)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201223013 Third Party Communication: None
Release Date: 6/8/2012 Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
---------------------------------------- ------------------------- --------------------- --
------------------------------- Telephone Number:
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------------------------------ Refer Reply To:
--------------------------------------- CC:PSI:B2
PLR-138831-11
Date: Feb. 2, 2012

Legend

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

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

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

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

   This responds to the letter dated September 9, 2011, and subsequent

correspondence 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 incorporated in State on D1. It was

intended for X to be an S corporation effective D1 and it filed Form 1120S for the year
beginning D1. 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 D1.

  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
PLR-138831-11 2

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 (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 and the representations submitted, we conclude that X

has established reasonable cause for failing to make a timely election to be an S
corporation effective D1. Accordingly, provided that X makes an election to be an S
corporation by filing a completed Form 2553 with the appropriate service center
effective D1 within 120 days following the date of this letter, then such election will be
treated as timely made for X's taxable year beginning D1 . A copy of this letter should
be attached to the Form 2553. X and its shareholders must file any necessary original
or amended returns consistent with the election within the sooner of 120 days following
the date of this letter or the date any year will close under § 6501(a). A copy of this
letter should be attached to each return.

   Except as specifically set forth above, no opinion is expressed 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 who requested it. Section 6110(k)(3)

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 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