PLR 1226001: IRS grants late S-corporation election relief

Plain-English summary

A corporation intended to be treated as an S corporation from the date it began business, but its Form 2553 election was filed late. The corporation established reasonable cause for missing the filing deadline. The IRS granted relief under section 1362(b)(5) and recognized the corporation as an S corporation effective on the requested date, provided it otherwise qualified and submitted a completed Form 2553 with a copy of the letter within 120 days. This type of relief can preserve intended pass-through tax treatment when an election deadline was missed for a valid reason.

Ruling snapshot

• Question: May a corporation's late S-corporation election be treated as timely because of reasonable cause?
• Outcome: Approved
• Key authorities: IRC § 1362(b)(5)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201226001 Third Party Communication: None
Release Date: 6/29/2012 Date of Communication: Not Applicable
Person To Contact:
Index Number: 1362.00-00, 1362.01-03 --------------------, ID No. -----------------
Telephone Number:
---------------------
-------------------------------------------------------- Refer Reply To:
------------------------------------------- CC:PSI:B01
----------------------------- PLR-101371-12
--------------------------------- Date:
March 07, 2012

                                                  LEGEND

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

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

d1 = -----------------------

d2 = ----------------------

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

   This letter responds to a letter dated December 19, 2011, written on behalf of X,

requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

                                                  FACTS

   According to the information submitted, X was incorporated under State law on

d1, and began doing business on d2. X’s sole shareholder intended for X to be an
S corporation as of d2. However, X’s Form 2553, Election by a Small Business
Corporation, was not timely filed.
PLR-101371-12 2

   X requests a ruling that it will be recognized as an S corporation effective d2.

                              LAW AND ANALYSIS

  Section 1362(a)(1) provides that, except as provided in § 1362(g), a small

business corporation may elect, in accordance with the provisions of § 1362, 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 at any time during the preceding taxable
year, or 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) a small business corporation makes an

election under § 1362(a) for any taxable year, and (B) such 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 such election shall be treated as made for the
following taxable year.

    Section 1362(b)(5) provides that if (A) 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 such 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, the Secretary may treat the election as timely
made for the taxable year (and § 1362(b)(3) shall not apply).

    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. Within 120 days from the date of this
letter, X must submit a properly completed Form 2553, with a copy of this letter
attached, to the appropriate service center.

    Except as expressly provided herein, we express or imply no opinion concerning

the 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
otherwise qualifies as an S corporation for federal tax purposes.
PLR-101371-12 3

     In accordance with the power of attorney on file with this office, a copy of this

letter is being sent to X’s authorized representative.

  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.

                                    Sincerely,


                                    Laura C. Fields
                                    Laura C. Fields
                                    Senior Technician Reviewer, Branch 1
                                    Office of the Associate Chief Counsel
                                    (Passthroughs & Special Industries)

Enclosures (2)
A copy of this letter
A copy for § 6110 purposes

cc: