PLR 201228022: IRS allows a late S corporation election for reasonable cause

Plain-English summary

A corporation intended to elect S corporation status effective on its incorporation date but did not timely file Form 2553. The IRS found reasonable cause for the missed filing and allowed the corporation to make the election effective from that date, provided it filed a completed Form 2553 with the appropriate service center within 120 days of the ruling. The corporation also had to attach a copy of the ruling to that form. The IRS did not rule on whether the corporation otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Could the corporation make a late S corporation election effective from its incorporation date?
• Outcome: Approved
• Key authorities: IRC §§ 1361, 1362(b), and 6110(k)(3)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201228022
Third Party Communication: None
Release Date: 7/13/2012
Date of Communication: Not Applicable
Person To Contact:
Index Number: 1362.01-03

Telephone Number:
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------------------------------------------ Refer Reply To:
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CC:PSI:B2
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PLR-144519-11
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Date:
March 22, 2012

Legend

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

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

Dear --------------------
This responds to the letter dated September 23, 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. 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 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.
PLR-144519-11
2

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.
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,

Melissa Liquerman
Branch Chief, Branch 2
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

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

cc: