PLR 1320010: IRS treats a late S corporation election as timely

Plain-English summary

The IRS considered a corporation's late election to be treated as an S corporation. The corporation had been formed with that status in mind, but its shareholders did not timely file Form 2553. The IRS found that the corporation established reasonable cause for the failure. It ruled that the election would be treated as timely if the corporation filed Form 2553 within 120 days of the letter with the redacted effective date.

Ruling snapshot

• Question: May the corporation make a late S corporation election effective from its intended date?
• Outcome: Approved
• Key authorities: IRC § 1362(b)(5)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201320010 Third Party Communication: None
Release Date: 5/17/2013 Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
------------------------------ ---------------------------, ID No. ---------------
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------------------------------------ Telephone Number:
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Refer Reply To:
CC:PSI:03
PLR-140750-12
Date:
January 10, 2013

                                                Legend

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

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

Shareholder1 = --------------------------------------------------------------------------------------------------------------

Shareholder2 = --------------------------------------------------------------------------------------------------------------

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

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

   This letter responds to a letter dated September 11, 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 shareholders, Shareholder 1 and

Shareholder 2, intended for X to be an S corporation effective D1. However, a Form
2553, Election by a Small Business Corporation, was not filed timely.

                                         Law and Analysis

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

S corporation.
PLR-140750-12 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 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 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.

   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.

  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.

  In accordance with a power of attorney on file with this office, we are sending a

copy of this letter to your authorized representatives.
PLR-140750-12 3

   The ruling contained in this letter is based upon information and representations

submitted by the taxpayer and 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,



                                 Mary Beth Carchia
                                 Senior Technician Reviewer, Branch 3
                                 Office of the Associate Chief Counsel
                                 (Passthroughs & Special Industries)

Enclosures (2):

  Copy of this letter
  Copy for § 6110 purposes

cc: