IRS allows late S-corporation election after finding reasonable cause

Plain-English summary

The IRS ruled that a corporation could be treated as an S corporation effective on the requested date even though it did not timely file Form 2553. The corporation established reasonable cause for the late election under IRC § 1362(b)(5). The IRS required the corporation to file a completed Form 2553 with the appropriate service center within 120 days after the ruling letter, and the corporation must otherwise qualify as an S corporation. The IRS did not rule on whether the corporation was a small business corporation under IRC § 1361(b).

Ruling snapshot

• Question: May the corporation's late S election be treated as timely and effective on the requested date?
• Outcome: Approved, subject to filing Form 2553 within 120 days and otherwise qualifying as an S corporation
• Key authorities: IRC §§ 1362(a), 1362(b), and 1362(b)(5); IRC § 1361(b); IRC § 6110(k)(3)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201410018
Third Party Communication: None
Release Date: 3/7/2014
Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
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Telephone Number:
--------------------------------------------- --------------------- Refer Reply To:
CC:PSI:02
PLR-125047-13
Date:
September 10, 2013

Legend
X = ------------------------------------------------------------------------------------------------------
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State = -------------
D1 = ------------------
D2 = ----------------------

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

This responds to a letter dated May 15, 2013, and subsequent correspondence 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 D1. X’s shareholders intended for X to be an S corporation effective D2. 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 D2.

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-125047-13
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 D2. 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 and thus, is eligible for relief under § 1362(b)(5). Provided that X otherwise qualifies as an S corporation, we conclude that X will be recognized as an S corporation effective D2, if X files a completed Form 2553 effective D2 with the appropriate service center within 120 days following the date of this letter. A copy of this letter should be attached to the Form 2553.

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).

Sincerely,

Associate Chief Counsel
(Passthroughs & Special Industries

Melissa C. Liquerman
Chief, Branch 2

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

cc: