IRS grants reasonable-cause 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 shareholders intended the election to be effective on its 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, provided it filed a completed Form 2553 with the appropriate service center. The ruling did not express an opinion on whether the corporation otherwise qualified 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.
• Key authorities: IRC § 1362(a), (b), (b)(3), and (b)(5).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201335009 Third Party Communication: None
Release Date: 8/30/2013 Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
----------------------------- ---------------, ID No. ------------------
---------------------------------- Telephone Number:
---------------------- ----------------------
------------------------------------------ Refer Reply To:
CC:PSI:B02
PLR-118138-13
Date:
April 26, 2013

Legend

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

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

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

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

This responds to a letter dated April 4, 2013 submitted by X requesting a ruling under
§ 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated in State on D1. X’s
shareholders intended that X elect S corporation treatment effective D1; however, a
Form 2553, Election by a Small Business Corporation, was not timely filed for X.

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. Generally, 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 corporation for the year in which the
election is made. Section 1362(b)(3) provides that if an S 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 (1) an election under § 1362(a) is made for any
taxable year 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 (2) the
PLR-118138-13 2

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 such taxable year
and § 1362(b)(3) shall not apply.

Based solely on the facts and the representations submitted, we conclude that X has
established reasonable cause for failing to make a timely election to be an S corporation
effective D1. Accordingly, provided that X makes an election to be an S corporation by
filing a completed Form 2553 with the appropriate service center effective D1 within 120
days following the date of this letter, then such election will be treated as timely made
for X's taxable year beginning D1. A copy of this letter should be attached to the Form
2553.

Except as specifically set forth above, no opinion is expressed or implied as to the
federal income tax consequences of the transaction described above under any other
provision of the Code. Specifically, no opinion is expressed concerning whether X is, in
fact, an S corporation for federal tax purposes.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.

                                  Sincerely,



                                  Charlotte Chyr
                                  Senior Technician Reviewer, Branch 2
                                  (Passthroughs & Special Industries)

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