PLR 1228027: IRS permits late S corporation election

Plain-English summary

A newly incorporated company asked the IRS to recognize a late election to be treated as an S corporation. Its sole shareholder intended the election to be effective on an earlier date, but Form 2553 was not timely filed. The IRS found reasonable cause for the missed deadline and granted relief under section 1362(b)(5). The company will be recognized as an S corporation on the requested effective date if it files a properly completed Form 2553 with the ruling attached within 120 days.

Ruling snapshot

• Question: Could the company make a late S corporation election effective on the requested date?
• Outcome: Approved
• Key authorities: IRC §§ 1362(a), 1362(b), and 1362(b)(5)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201228027 Third Party Communication: None
Release Date: 7/13/2012 Date of Communication: Not Applicable
Person To Contact:
Index Number: 1362.01-03 ----------------------, ID No. -----------------
Telephone Number:
--------------------
----------------------------------- Refer Reply To:
---------------------------------------- CC:PSI:B01
----------------------------- PLR-147957-11
------------------------------ Date:
March 27, 2012

Legend

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

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

State = --------

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

This responds to a letter dated October 26, 2011, and subsequent correspondence,
submitted on behalf of X by X’s authorized representative, requesting relief under
§ 1362(b)(5) of the Internal Revenue Code.

FACTS

According to the information submitted, X was incorporated on Date under the laws of
State. X’s sole shareholder intended for X to be treated as an S corporation for federal
tax purposes effective Date, but X’s Form 2553, Election by a Small Business
Corporation, 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 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. Section 1362(b)(3)
PLR-147957-11 2

provides that 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 Date. 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 Date 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) of the Code
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 your authorized representative.

                                   Sincerely,


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

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

cc: