IRS grants relief for a late S corporation election

Plain-English summary

A corporation intended to be an S corporation from the date it was formed, but its shareholders did not timely file Form 2553. The IRS found reasonable cause for the late filing. It allowed the corporation to make the election effective from its incorporation date if it filed Form 2553 within 120 days and attached the ruling. The IRS did not rule on whether the corporation was otherwise eligible for S corporation treatment.

Ruling snapshot

• Question: Can the corporation make a late S corporation election effective from its incorporation date?
• Outcome: Approved, if Form 2553 is filed within 120 days.
• Key authorities: IRC § 1362(b)(5) and § 6110

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201408004 Third Party Communication: None
Release Date: 2/21/2014 Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
------------------------------------------- ---------------------------, ID No. ---------------
---------------------------------------------- -----------------
------------------------------ Telephone Number:
-------------------------------- --------------------
Refer Reply To:
CC:PSI:B03
PLR-118256-13
Date:
October 22, 2013

                                                 Legend

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

Shareholders = ----------------------
-------- ------------------

                                -----------------------
                                -------- ------------------

                                 ---------------------------

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

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

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

   This letter responds to a letter dated February 15, 2013, and subsequent

correspondence, submitted on behalf of X requesting a ruling under § 1362(b)(5) of the
Internal Revenue Code.

                                                  Facts

  X was incorporated on D1 under State law. X’s shareholders, Shareholders,

intended for X to be an S corporation effective from its date of incorporation. However,

PLR-118256-13 2

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 D1.

                                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.

    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 such election shall be 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 such election for such 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 such an
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 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 D1, 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. A copy is enclosed for that purpose.

   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.

PLR-118256-13 3

    Under a power of attorney on file with this office, we are sending a copy of this

letter to X’s authorized representative.

   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,



                                   Stacy L. Short
                                   Senior Technician Reviewer, Branch 3
                                   Office of the Associate Chief Counsel
                                   (Passthroughs & Special Industries)

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

cc: