IRS grants a corporation reasonable-cause relief for a late S corporation election

Plain-English summary

A corporation intended to be an S corporation (taxed as a pass-through, so the
company owes no federal income tax itself) and filed its returns consistently on
that basis, but it never filed the required election form (Form 2553) on time.
Code Section 1362(b)(5) lets the IRS forgive a late S election when the company
had reasonable cause for the delay. The IRS found reasonable cause and ruled the
election will be treated as timely made for the year the company intended to
become an S corporation, provided it files a proper Form 2553 within 120 days.
The IRS expressed no opinion on whether the company otherwise qualifies as an S
corporation.

Ruling snapshot

• Question: Should the company get relief under § 1362(b)(5) to treat its late S corporation election as timely?
• Outcome: Approved (reasonable-cause relief granted, subject to filing Form 2553 within 120 days)
• Key authorities: IRC § 1362(b)(5); IRC § 1362(a), (b); IRC § 1361(a)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201845026
Release Date: 11/9/2018
Index Numbers: 1362.00-00, 1362.01-03

Third Party Communication: None
Date of Communication: Not Applicable

Person To Contact:
----------------------, ID No. ------------------
Telephone Number:

Refer Reply To:
CC:PSI:B01
PLR-110326-18

Date:
July 25, 2018

LEGEND

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

State = --------

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

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

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

This responds to a letter dated March 21, 2018, 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.

                                               FACTS

X was incorporated under the laws of State on Date 1. It is represented that X intended
to be an S corporation effective Date 2. Since Date 2, X has filed tax returns consistent
with S corporation treatment.

PLR-110326-18 2

However, X's Form 2553, Election by a Small Business Corporation, was not timely
filed. X requests a ruling under § 1362(b)(5) that its § 1362(a) election will be treated as
timely made for its tax year that began on Date 2.

                              LAW AND ANALYSIS

Section 1361(a) provides that the term "S corporation" means, with respect to any
taxable year, a small business corporation for which an election under § 1362(a) is in
effect for such year.

Section 1362(a) generally provides that a small business corporation may elect to be an
S corporation.

Section 1362(b) provides when an S corporation election will be effective. Generally, if
an S corporation election is made within the first two and one half months of a
corporation's taxable year, then that corporation will be treated as an S corporation
beginning the year in which the election is made.

Section 1362(b)(3) provides that if an S corporation 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
made.

Section 1362(b)(5) provides that if (1) an election under § 1362(a) is made for any
taxable year after the date prescribed by § 1362 for making the election or no § 1362(a)
election is made for any taxable year; and (2) 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.

                                  CONCLUSION

Based upon the facts submitted and representations made, we conclude that X has
established reasonable cause for not making a timely election and is eligible for relief
under § 1362(b)(5). Accordingly, X's S corporation election will be treated as timely
made for its taxable year that began on Date 2.

This ruling is contingent on X filing Form 2553, Election by a Small Business
Corporation, with an effective date of Date 2, with the appropriate Service Center within
120 days from the date of this ruling. A copy of this letter should be attached to the
Form 2553 filed with the Service Center.

Except as specifically set forth above, we express or imply no opinion concerning the
federal tax consequences of the facts described above under any other provision of the

PLR-110326-18 3

Code. Specifically, we express or imply no opinion concerning whether X otherwise
qualifies as 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.

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

                                                Associate Chief Counsel
                                                (Passthroughs and Special Industries)

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

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

cc: