Late S corporation election allowed for reasonable cause

Plain-English summary

A newly incorporated company intended to elect S corporation status but did not timely file Form 2553. The IRS found reasonable cause for the late filing. It allowed the company to make the election within 120 days of the ruling letter, with the requested effective date, provided it otherwise qualified as an S corporation.

Ruling snapshot

• Question: Whether a corporation could receive relief for a late S corporation election.
• Outcome: Approved, subject to filing Form 2553 within 120 days and satisfying the other requirements.
• Key authorities: IRC § 1362.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201235004 Third Party Communication: None
Release Date: 8/31/2012 Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
------------- --------------, ID No. -----------------
-------------------- Telephone Number:
----------------------- -------------------
-------------------------------------------- Refer Reply To:
CC:PSI:3
PLR-105515-12
Date:
May 02, 2012

                                               LEGEND

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

State = ---------

Shareholder = ---------------------------------------------------------------------------------------------
-------------------------

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

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

   This letter responds to a letter dated January 26, 2012, and subsequent

correspondence, submitted on behalf of X, requesting a ruling under § 1362(b)(5) of the
Internal Revenue Code.

                                                FACTS

  X was incorporated under State law on D1. X's sole shareholder, Shareholder,

intended for X to be an S corporation effective D1. However, a Form 2553, Election by
a Small Business Corporation, was not filed timely. X requests a ruling that it will be
recognized as an S corporation effective D1.

                                        LAW AND ANALYSIS

  Section 1362(a)(1) provides that a small business corporation may elect to be an

S corporation.
PLR-105515-12 2

    Section 1362(b)(1) provides that an election under § 1362(a) may be made by a

small business corporation for any taxable year (A) at any time during the preceding
taxable year, or (B) at any time during the taxable year and on or before the 15th day of
the third month of the taxable year.

   Section 1362(b)(3) provides that if a small business corporation makes an

election under § 1362(a) for any taxable year, and the election is made after the 15th
day of the third month of the taxable year and on or before the 15th day of the third
month of the following taxable year, then the election is treated as made for the
following taxable year.

    Section 1362(b)(5) provides that if an election under § 1362(a) is made for any

taxable year (determined without regard to § 1362(b)(3)), 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 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 the taxable year (and § 1362(b)(3) shall not apply).

                                 CONCLUSION

    Based on the facts submitted and representations made, we conclude that X has

established reasonable cause for failing to timely make an S corporation election. Thus,
we conclude that X is eligible for relief under § 1362(b)(5). Accordingly, if X makes an
election to be an S corporation by filing with the appropriate service center a completed
Form 2553 within one hundred twenty (120) days following the date of this letter,
containing an effective date of D1, the election shall be treated as timely made. A copy
of this letter should be attached to the Form 2553 filed with the service center. A copy
is enclosed for that purpose.

   Except as expressly provided herein, we express or imply no opinion concerning

the federal tax consequences of any aspect of any transaction or item discussed or
referenced in this letter. Specifically, we express or imply no opinion concerning
whether X is otherwise eligible to be an S corporation for federal tax purposes.

  We direct this ruling 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 a power of attorney on file with this office, we have sent a

copy of this letter to your authorized representative.
PLR-105515-12 3

   We based the ruling contained in this letter upon information and representations

the taxpayer submitted, which was accompanied by a penalty of perjury statement
executed by an appropriate party. While this office has not verified any of the material
submitted in support of the ruling request, it is subject to verification on examination.

                                 Sincerely,



                                 Tara P. Volungis
                                 Branch Chief, Branch 3
                                 Office of the Associate Chief Counsel
                                 Passthroughs and Special Industries

Enclosures (2):

  Copy of this letter
  Copy for § 6110 purposes