Corporation receives late S election relief

Plain-English summary

A corporation intended to be an S corporation from its formation date but failed to timely file Form 2553. The corporation and its sole shareholder had consistently filed their federal tax returns as though the election were effective. The IRS found reasonable cause for the late filing and gave the corporation 120 days to submit Form 2553 with the requested effective date. The IRS did not rule on whether the corporation otherwise qualified as a small business corporation under IRC § 1361(b).

Ruling snapshot

• Question: May the corporation's late S election be treated as timely from its intended effective date?
• Outcome: Approved. The election will be timely if the corporation files Form 2553 and the ruling within 120 days.
• Key authorities: IRC §§ 1361(b), 1362(a), 1362(b)(5)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201719001
Third Party Communication: None
Release Date: 5/12/2017
Date of Communication: Not Applicable
Index Number: 1362.01-03, 9100.31-00
Person To Contact:
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Telephone Number:
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---------------------------------------------- Refer Reply To:
CC:PSI:B03
PLR-100409-17
Date:
February 01, 2017

Legend

X = ----------------------------------------------
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State = --------------------------

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

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

This letter responds to a letter dated December 28, 2016, submitted on behalf of X, requesting relief to file a late S corporation election under § 1362(b)(5) of the Internal Revenue Code (“Code”).

The information submitted states that X was incorporated on Date under the laws of State. X represents that it always intended to be treated as an S corporation for federal tax purposes beginning on Date. However, X represents that it failed to properly and timely file Form 2553, Election by a Small Business Corporation. X further represents that it and its sole shareholder have always filed their federal tax returns consistent with X’s treatment as an S corporation.

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)(1) 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
§ 1362(b)(3), however, if an S election is made after the first two and one-half months of
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a corporation’s taxable year, then that corporation will not be treated as an S corporation until the taxable year after the year in which the S election is filed.

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 such election for such taxable year or no such election is made for any taxable year, and (B) the Secretary determines that there was reasonable cause for the failure to timely make such election, then the Secretary may treat such an election as timely made for such taxable year.

Based solely on the facts submitted and the representations made, we conclude that X has 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 effective Date, along with a copy of this letter, with the appropriate service center within 120 days from the date of this letter, then such election will be treated as timely made for Date.

Except as expressly provided herein, we express or imply no opinion concerning the federal income tax consequences of the facts described above under any other provision of the Code, including whether X qualifies as a small business corporation under § 1361(b) of the Code.

The ruling contained in this letter is based on 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.

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.
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In accordance with the power of attorney on file with this office, we are sending a copy of this letter to your authorized representative.

Sincerely,

Bradford R. Poston
Senior Counsel, Branch 3
Office of Associate Chief Counsel
(Passthroughs & Special Industries)

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

cc: