IRS allows a late S corporation election after finding reasonable cause

Plain-English summary

An entity formed in a state intended to elect S corporation status for a specified tax year but did not timely file Form 2553. The IRS found reasonable cause for the late election under IRC § 1362(b)(5). It allowed the election to be treated as timely if the entity filed Form 2553 within 120 days after the letter and the entity and its shareholders filed consistent initial or amended returns within the same period. The ruling became null and void if those conditions were not met.

Ruling snapshot

• Question: May the entity make a late S corporation election effective for the specified tax year?
• Outcome: Approved, subject to conditions.
• Key authorities: IRC §§ 1362(a), 1362(b), 1362(b)(3), 1362(b)(5), 6501(a), and 1361(b).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201406006
Third Party Communication: None
Release Date: 2/7/2014
Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
-----------------------
-------------------
---------------------------------------
ID No. ------------------
----------------------------------------- Telephone Number:
--------------------------------
----------------------
Refer Reply To:
CC:PSI:B02
PLR-130272-13
Date:
September 10, 2013

Legend

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

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

Date = -----------------

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

This responds to a letter received in this office on June 4, 2013, submitted on behalf of X by X’s authorized representative, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was formed in State on Date. X’s shareholders intended for X to be an S corporation effective Date. However, no Form 2553, Election by a Small Business Corporation, was timely filed for X. Accordingly, X requests a ruling that it will be treated as an S corporation effective Date.

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) provides, in relevant part, 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 corporation for the year in which the election is made. Under section 1362(b)(3), an S election made after the first two and one-half months of a corporation’s taxable year, results in the corporation not being treated as an S corporation until the taxable year following the year in which the S election is filed.

PLR-130272-13
2

Section 1362(b)(5) provides that if (A) 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 (B) 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 such taxable year and § 1362(b)(3) shall not apply.

X did not timely file an election under § 1362(a) to be treated as an S corporation for X’s taxable year beginning Date. Based solely on the facts and the representations submitted, we conclude that X established reasonable cause for failing to make a timely election to be an S corporation effective Date. Accordingly, provided that X makes an election to be an S corporation by filing a completed Form 2553 with the appropriate service center effective Date within 120 days following the date of this letter, then such election will be treated as timely made for X’s taxable year beginning Date. A copy of this letter should be attached to the Form 2553. This ruling is conditioned on X, and X’s shareholders, filing, within 120 days following the date of this letter, initial or amended returns to report consistent with X being an S corporation for all taxable years for which the period provided in § 6501(a) has not expired. If X and its shareholders do not comply with these conditions, this letter is null and void. A copy of this letter should be attached to each of the returns described above.

Except as expressly set forth above, no opinion is expressed or implied concerning the federal tax consequences of the facts described above under any other provision of the Code, including whether X was or is a small business corporation under § 1361(b).

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.

Pursuant to a power of attorney on file with this office, a copy of this letter is being sent to X’s authorized representative.

Sincerely,

Melissa Liquerman
Branch Chief, Branch 2
(Passthroughs & Special Industries)

Enclosure (1)
Copy for § 6110 purposes

cc: