Corporation receives 120 days to file a late S election

Plain-English summary

A corporation's shareholder intended the company to be an S corporation from a redacted effective date, but the S election was not timely filed. The IRS found reasonable cause for the missed deadline under section 1362(b)(5). It ruled that the company would be treated as an S corporation from the intended date, provided it otherwise qualified. The company had 120 days from the letter date to submit a completed Form 2553 with a copy of the ruling.

Ruling snapshot

• Question: Could the corporation's late S election be treated as timely from its intended effective date?
• Outcome: approved
• Key authorities: IRC § 1362(a), (b)(2), (b)(3), and (b)(5)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201730016 Third Party Communication: None
Release Date: 7/28/2017 Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
---------------------------- ------------------------------, ID No. ------------
--------------------- -----------------
--------------------------- Telephone Number:
----------------------------- ----------------------
Refer Reply To:
CC:PSI:B01
PLR-132358-16
Date:
April 03, 2017

LEGEND:

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

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

Year = -------

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

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

  This responds to the letter dated October 6, 2016, submitted on behalf of X,

requesting relief under § 1362(b)(5) of the Internal Revenue Code.

FACTS

   X was formed in Year and incorporated in accordance with the laws of State.

The shareholder of X intended that X be treated as an S corporation effective on D1, but
the election to be treated as an S corporation was not timely filed. Accordingly, X
requests a ruling that it will be treated as an S corporation effective D1.

LAW AND ANALYSIS

  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)(2) provides in relevant part that if an S election is made within the first two and
PLR-132358-16 2

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 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 no election is made pursuant to § 1362(a), or,

if made, the election is made after the date prescribed for making such an election, and
the Secretary determines there was reasonable cause for the failure to timely make the
election, then the Secretary may treat such election as timely made for such taxable
year and effective as of the first day of that year.

   X did not timely file an election to be treated as an S corporation under

§ 1362(a). X has, however, established reasonable cause for not making a timely S
election and is entitled to relief under § 1362(b)(5).

CONCLUSION

   Based solely on the facts submitted and the representations made, and provided

that X otherwise qualifies as an S corporation, we conclude that X will be treated as an
S corporation effective D1. Within 120 days from the date of this letter, X should submit
a properly completed Form 2553, with a copy of this letter attached, to the appropriate
service center.

   Except as specifically set forth above, no opinion is expressed or implied as to

the federal tax consequences of the facts described above under any other provision of
the Code. Specifically, no opinion is expressed concerning whether X is, in fact, an S
corporation for federal tax purposes.

  This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3)

provides that it may not be used or cited as precedent.

                                     Sincerely,

                                     Laura C. Fields
                                     ________________________________
                                     Laura C. Fields
                                     Senior Technician Reviewer, Branch 1
                                     Office of the Associate Chief Counsel
                                     (Passthroughs and Special Industries)

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