PLR 201314040: Late S corporation election relief granted for reasonable cause

Plain-English summary

A corporation’s sole shareholder intended the corporation to be treated as an S corporation from a redacted effective date, but the required election was not timely filed. The IRS found that the corporation established reasonable cause for the late election and granted relief under IRC § 1362(b)(5). The corporation could be recognized as an S corporation from the redacted effective date if it otherwise qualified and submitted a properly completed Form 2553 with a copy of the ruling to the appropriate service center within 120 days. The IRS expressed no opinion on other tax consequences or on the corporation’s underlying S corporation eligibility.

Ruling snapshot

• Question: May a corporation receive relief for a late S corporation election when it establishes reasonable cause?
• Outcome: Approved, subject to the stated filing conditions.
• Key authorities: IRC § 1362(a), (b), and (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201314040
Third Party Communication: None
Release Date: 4/5/2013
Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
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Telephone Number:
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------------------------------------------- Refer Reply To:
CC:PSI:B01
PLR-149245-12
Date:
December 20, 2012

LEGEND

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

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

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

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

This responds to a letter dated November 9, 2012, submitted on behalf of X, requesting relief under § 1362(b)(5) of the Internal Revenue Code.

FACTS

According to the information submitted, X was incorporated on D1 under the laws of State. X’s sole shareholder intended for X to be treated as an S corporation for Federal tax purposes effective D2, but the proper election was not timely filed.

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)(2) provides 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
PLR-149245-12
2

corporation for the year in which the election is made. If the election is made after the first two and one-half months of a corporation's taxable year, then the corporation will not be treated as an S corporation until the taxable year after the year in which the S election is made.

Section 1362(b)(5) provides that if no election is made pursuant to § 1362(a), or, if made, the election is made after the date prescribed for making such an election, and the Secretary determines there was reasonable cause for the failure to timely make the election, then the Secretary may treat such election as timely made for such taxable year and effective as of the first day of that year.

X did not file a timely election to be treated as an S corporation under § 1362(a) effective D2. X has, however, established reasonable cause for not making a timely election and is entitled to relief under § 1362(b)(5).

CONCLUSION

Based solely on the facts submitted and representations made, and provided that X otherwise qualifies as a subchapter S corporation, we conclude that X will be recognized as an S corporation effective D2 if, within 120 days from the date of this letter, X submits a properly completed Form 2553, Election by a Small Business Corporation, with a copy of this letter attached, to the appropriate service center.

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. Specifically, no opinion is expressed or implied concerning whether X otherwise qualifies as 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.

Sincerely,

Laura Fields
Laura Fields
Senior Technician Reviewer, Branch 1
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

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

cc: