Corporation receives relief for late S election

Plain-English summary

A corporation's sole shareholder intended the company to be an S corporation from a specified effective date, but Form 2553 was not filed on time. The corporation requested late-election relief under section 1362(b)(5). The IRS found reasonable cause for the failure and allowed the election to be treated as timely. Relief was conditioned on filing a completed Form 2553 with the proper service center within 120 days. The IRS did not rule on whether the corporation otherwise qualified for S status.

Ruling snapshot

• Question: Could the corporation's late S election be treated as timely because it had reasonable cause for missing the deadline?
• Outcome: approved, conditioned on filing Form 2553 within 120 days
• Key authorities: IRC § 1362(a) and (b)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201714024 Third Party Communication: None
Release Date: 4/7/2017 Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
--------------------------------- -----------------------, ID No. ----------------
--------------------------- Telephone Number:
-------------------------------------------- ----------------------
-------------------------------- Refer Reply To:
CC:PSI:B03
PLR-128640-16
Date:
January 09, 2017

Legend

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

A = --------------------
-------- ------------------

Date 1= ------------------------

Date 2 = ----------------------

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

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

   This letter responds to your letter dated August 19, 2016, submitted on behalf of

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

                                              FACTS

    X was incorporated under State law on Date 1. X’s sole shareholder, A, intended

for X to be an S corporation effective Date 2. However, X’s Form 2553, Election by a
Small Business Corporation, was not filed timely.

     X requests a ruling that it will be recognized as an S corporation effective Date 2.

                                        LAW AND ANALYSIS

PLR-128640-16 2

  Section 1362(a)(1) provides that, except as provided in § 1362(g), a small

business corporation may elect, in accordance with § 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 at any time during the preceding taxable
year, or at any time during the current 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 the election is treated as made for the
following taxable year.

    Section 1362(b)(5) provides that if 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 the election for the taxable year or no § 1362(a) election is made
for any taxable year, and 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 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 an S corporation election in a timely
manner. 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 Date 2, within 120 days following the date of
this letter, the election shall be treated as timely made.

   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.

PLR-128640-16 3

   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.

   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,



                                  Mary Beth Carchia
                                  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