PLR 1227004: IRS treats a late S corporation election as timely for reasonable cause

Plain-English summary

The IRS granted a corporation relief for failing to timely file Form 2553 to elect S corporation status. The corporation's sole shareholder intended the election to be effective on a specified date, but the form was not filed on time. The IRS found reasonable cause and allowed the corporation 120 days from the ruling date to file the completed Form 2553, with the election treated as timely for the relevant tax year. The ruling expressed no opinion on other federal tax consequences, including whether the entity qualified as a small business corporation.

Ruling snapshot

• Question: Could the IRS treat a late S corporation election as timely after the taxpayer established reasonable cause?
• Outcome: Approved
• Key authorities: IRC §§ 1362(a), 1362(b), 1362(b)(5), 1361(b)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201227004 Third Party Communication: None
Release Date: 7/6/2012 Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
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--------------------------------------------------- ID No. -----------------
-------------------------------------------- Telephone Number:
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Refer Reply To:
CC:PSI:B02
PLR-105261-12
Date:
March 14, 2012

Legend

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

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

Date = -------------------

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

   This responds to a letter dated January 11, 2012, 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 formed in State on Date. X’s sole

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.

   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