PLR 201324007: IRS grants relief for a late S corporation election

Plain-English summary

The IRS granted a corporation relief for failing to timely file Form 2553 to elect S corporation status. The corporation's sole shareholder intended the election to be effective from the corporation's incorporation date, but the form was not filed on time. The IRS found reasonable cause and allowed the corporation to make the election within 120 days after the letter date. The corporation still had to otherwise qualify as an S corporation.

Ruling snapshot

• Question: Could the corporation make a late S corporation election under IRC § 1362(b)(5)?
• Outcome: Approved, subject to filing Form 2553 within 120 days and otherwise qualifying.
• Key authorities: IRC §§ 1362(a)(1), 1362(b)(1), and 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201324007
Third Party Communication: None
Release Date: 6/14/2013
Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
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Refer Reply To:
CC:PSI:B03
PLR-148323-12
Date:
February 28, 2013

Legend

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

a = -------------------------

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

This letter responds to a letter dated November 6, 2012, submitted on behalf of X requesting a ruling under § 1362(b)(5) of the Internal Revenue Code (Code).

Facts

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

Law and Analysis

Section 1362(a)(1) provides that except as provided in § 1362(g), a small business corporation may elect, in accordance with the provisions of § 1362, to be an S corporation.
PLR-148323-12
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)(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 such election for such taxable year or no such 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 such an 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 a timely 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 effective a, within 120 days following the date of this letter, 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 who requested it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

Under a power of attorney on file with this office, we are sending a copy of this letter to X’s authorized representative.

Sincerely,

/s/
Mary Beth Carchia
Acting Branch Chief, Branch 3
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosures (2)
A copy of this letter
A copy for § 6110 purposes