PLR 1233004: IRS allows late S corporation election after reasonable cause

Plain-English summary

The IRS ruled that a newly incorporated company had reasonable cause for failing to timely file its S corporation election. The company intended the election to be effective on its incorporation date but did not timely file Form 2553. The IRS allowed the election to be treated as timely made if the company filed a completed Form 2553 within 120 days after the ruling date. The ruling did not address whether the company otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Could the company make a late S corporation election effective on its intended date?
• Outcome: Approved, subject to filing Form 2553 within 120 days.
• Key authorities: IRC §§ 1361(b), 1362(a), (b), (b)(3), and (b)(5).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201233004 Third Party Communication: None
Release Date: 8/17/2012 Date of Communication: Not Applicable
Index Number: 1362.01-00, 1362.01-03
Person To Contact:
--------------------------------------- ----------------------, ID No. -----------------
-------------------------------- Telephone Number:
------------------------------ ---------------------
------------------------------ Refer Reply To:
CC:PSI:2
PLR-110924-12
Date:
April 25, 2012

Legend

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

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

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

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

This responds to the letter dated December 15, 2011 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 Date. It was
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 that an S election will be effective for the taxable year if a
small business corporation makes the election during the preceding taxable year or
within the first two and one-half months of a corporation’s taxable year. Section
1362(b)(3) provides that an S election made after the first two and one-half months of a
corporation’s taxable year will be treated as made for the following taxable year.

Section 1362(b)(5) authorizes the Secretary to treat an election as timely made if: (A)
an election under § 1362(a) is made for any taxable year after the date prescribed by
PLR-110924-12 2

§ 1362(b) for making the election for such taxable year or no such election is made for
any taxable year, and (B) the Secretary determines that there was reasonable cause for
the failure to timely make such election.

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 on 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 on Date. A copy of this letter
should be attached to the Form 2553 filed with the service center and is enclosed for
that purpose.

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.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to X’s authorized representative.

                                   Sincerely,



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

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