IRS grants relief for a late S corporation election

Plain-English summary

The IRS granted a corporation 120 days to file Form 2553 and make a late election to be treated as an S corporation effective on a specified date. The IRS found that the corporation had reasonable cause for failing to make the election on time. The ruling will apply only if the corporation files the completed form within 120 days, and the IRS did not decide whether the corporation otherwise qualified as a small business corporation under section 1361(b). No opinion was expressed on other federal tax consequences.

Ruling snapshot

• Question: Whether the corporation could obtain relief for a late S corporation election under IRC § 1362(b)(5).
• Outcome: Approved.
• Key authorities: IRC §§ 1361(b) and 1362; 26 U.S.C. § 6110(k)(3).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201234010
Third Party Communication: None
Release Date: 8/24/2012
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-110011-12
Date:
April 27, 2012

Legend

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

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

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

This responds to a letter dated February 1, 2012, and subsequent correspondence submitted on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was formed in State on Date. X’s sole shareholder 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 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-110011-12
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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 Date. 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 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 Date. 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.

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: