PLR 201228028: IRS permits late S corporation election

Plain-English summary

A corporation asked the IRS to recognize a late election to be treated as an S corporation. Its shareholders intended the S election to be effective on an earlier date, but Form 2553 was not timely filed. The IRS found that the corporation had reasonable cause for the missed deadline. It ruled that the election would be treated as timely if the corporation filed the completed Form 2553 within 120 days after the ruling date.

Ruling snapshot

• Question: Could the corporation 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: 201228028
Third Party Communication: None
Release Date: 7/13/2012
Date of Communication: Not Applicable
Person To Contact:
Index Number: 1362.01-03
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ID No. -----------------
Telephone Number:
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-------------------------------------------- Refer Reply To:
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CC:PSI:B02
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PLR-149037-11
Date:
March 12, 2012

Legend

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

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

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

D2 = ----------------------

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

This responds to a letter dated November 10, 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 formed in State on D1. X’s shareholders intended for X to be an S corporation effective D2. 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 D2.

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
PLR-149037-11
2

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 D2. 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 D2. Accordingly, provided that X makes an election to be an S corporation by filing a completed Form 2553 with the appropriate service center effective D2 within 120 days following the date of this letter, then such election will be treated as timely made for X’s taxable year beginning D2. 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,

Melissa Liquerman
Branch Chief, Branch 2
(Passthroughs & Special Industries)

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

cc: