PLR 201322028: IRS grants relief for a late S corporation election

Plain-English summary

The IRS granted a corporation 120 days to make an S corporation election effective as of its intended start date. The corporation had been incorporated under state law, but its Form 2553 was not timely filed. The IRS found reasonable cause for the late election and allowed the corporation to seek relief under IRC § 1362(b)(5). The ruling did not address whether the corporation otherwise qualified to be an S corporation.

Ruling snapshot

• Question: Could the corporation make a late S corporation election effective as of its intended date?
• Outcome: Approved, 120-day filing period granted
• Key authorities: IRC § 1362(b)(5) and § 6110(k)(3).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201322028
Third Party Communication: None
Release Date: 5/31/2013
Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
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CC:PSI:B03
PLR-139866-12
Date:
February 04, 2013

LEGEND

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

Date 1 = ----------------------

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

This letter responds to a letter dated August 8, 2012, and subsequent correspondence, written on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

FACTS

X was incorporated under State law on Date 1. X’s sole shareholder, A, intended for X to be an S corporation effective Date 1. However, X’s Form 2553, Election by a Small Business Corporation was not timely filed. X requests a ruling that it will be recognized as an S corporation effective Date 1.

LAW AND ANALYSIS
PLR-139866-12
2

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

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) a small business corporation makes an election under § 1362(a) for any taxable year, and (B) 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 (A) 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 (B) the Secretary determines that there was reasonable cause for the failure to timely make the election, the Secretary may treat the election as timely made for the taxable year (and § 1362(b)(3) shall not apply).

CONCLUSION

Based solely on the facts submitted and representations made, we conclude that X has established reasonable cause for failing to timely make an S corporation election effective Date 1. 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 a completed Form 2553 with the appropriate service center effective Date 1 within 120 days following the date of this letter, then such election will 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, 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 as to 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.
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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,

James A. Quinn
Senior Counsel, Branch 3
Office of Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosures (2):

A copy of this letter
A copy for § 6110 purposes

cc: