PLR 201233002: IRS allows late S corporation election after reasonable cause

Plain-English summary

The IRS ruled that a newly incorporated company could be treated as an S corporation from its incorporation date even though it did not timely file Form 2553. The company established reasonable cause for the late election. The ruling required the company to file a properly completed Form 2553, with a copy of the ruling attached, within 120 days. The IRS did not decide whether the company otherwise qualified as an S corporation.

Ruling snapshot

• Question: Could the company make a late S corporation election effective on its incorporation date?
• Outcome: Approved, subject to filing Form 2553 within 120 days and otherwise qualifying.
• Key authorities: IRC § 1362(a), (b), (b)(1), (b)(3), and (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201233002
Third Party Communication: None
Release Date: 8/17/2012
Date of Communication: Not Applicable
Person To Contact:
Index Number: 1362.01-03
------------------, ID No. -------------
Telephone Number:
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Refer Reply To:
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PLR-103327-12
-------------------------------------------- Date:

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March 27, 2012

Legend:

X = ---------------------------
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D1 = ---------------------------

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

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

This responds to the letter dated January 11, 2012, and supplemental materials, submitted on behalf of X, requesting relief under § 1362(b)(5) of the Internal Revenue Code.

Facts

X was incorporated on D1 under the laws of State. The shareholder of X intended that X be treated as an S corporation effective on D1, but the Form 2553, Election by a Small Business Corporation, electing to be treated as an S corporation was not timely filed. Accordingly, X requests a ruling that it will be treated as an S corporation effective D1.

Law and Analysis

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)(1) 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
PLR-103327-12
2

treated as an S corporation for the year in which the election is made. Under § 1362(b)(3), however, if an S election is made after the first two and one-half months of a corporation's taxable year, then that corporation will not be treated as an S corporation until the taxable year after the year in which the S election is filed.

Section 1362(b)(5) provides that if (1) no § 1362(a) election is made for any taxable year and (2) the Secretary determines that there was reasonable cause for the failure to timely make such election, then the Secretary may treat such an election as timely made for such taxable year and § 1362(b)(3) shall not apply.

X did not timely file an election to be treated as an S corporation under § 1362(a). X has, however, established reasonable cause for not making a timely S election and is entitled to relief under ' 1362(b)(5).

Conclusion

Based solely on the facts submitted and the representations made, and provided that X otherwise qualifies as an S corporation, we conclude that X will be treated as an S corporation effective D1, 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 specifically set forth above, no opinion is expressed or implied as to the federal tax consequences of the facts described above under any other provision of the Code. Specifically, no opinion is expressed concerning whether X is, in fact, an S corporation for federal tax purposes.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) provides that it may not be used or cited as precedent.

Pursuant to the power of attorney on file with this office, a copy of this letter will be sent to X’s authorized representative.

Sincerely,

Laura C. Fields
Laura C. Fields
Senior Technician Reviewer, Branch 1
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)
Enclosures:
Copy of this letter
Copy for ' 6110 purposes