Corporation's late S-election treated as timely for reasonable cause

Plain-English summary

A corporation wanted to be taxed as an S corporation from a specific date but never filed a proper election (Form 2553) on time. Its sole shareholder had, however, filed personal returns for every year since as if the S election were in place. The corporation asked the IRS to treat the late election as timely under § 1362(b)(5), which allows relief when there was reasonable cause for the failure. The IRS agreed and will treat the S election as timely made as of the intended date. The relief is conditional on the corporation filing Form 2553 (with a copy of this letter) within 120 days and on the corporation and shareholder continuing to file returns consistent with S treatment.

Ruling snapshot

• Question: May the corporation's untimely S-corporation election be treated as timely made under § 1362(b)(5) for reasonable cause?
• Outcome: approved (election treated as timely, contingent on filing Form 2553 within 120 days)
• Key authorities: IRC § 1362(a); IRC § 1362(b)(1); IRC § 1362(b)(3); IRC § 1362(b)(5)

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 202241002                                              Third Party Communication: None
Release Date: 10/14/2022                                       Date of Communication: Not Applicable
Index Number: 1362.01-03
                                                               Person To Contact:
-------------------------------                                -------------------, ID No.
-----------------------------------------------------          Telephone Number:
----------------------------                                   --------------------
------------------------                                       Refer Reply To:
-----------------------------                                  CC:PSI:03
                                                               PLR-103509-22
                                                               Date:
                                                               July 18, 2022
         Re: ----------------------------------------------
-------------------

Legend

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

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

State             =        --------

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


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

       This letter responds to a letter dated January 7, 2022, and subsequent
correspondence submitted on behalf of X by its authorized representative, requesting a
ruling under § 1362(b)(5) of the Internal Revenue Code (Code) to treat its S corporation
election as timely made.

                                                        FACTS

        Based on the information submitted, X was incorporated under the laws of State
on Date. X intended to elect to be treated as an S corporation for federal tax purposes
effective Date, but a proper election was not timely made. X's sole shareholder, A, filed
their federal tax returns consistent with X's treatment as an S corporation for all periods
since Date.

                                            LAW AND ANALYSIS
PLR-103509-22                             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 (A) at any time during the preceding
taxable year, or (B) at any time during the 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) such 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 such election is treated as made for the
following taxable year.

       Section 1362(b)(5) provides that if (A) 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 (B) the Secretary determines that there was reasonable
cause for the failure to timely make such election, the Secretary may treat such an
election as timely made for the taxable year (and § 1362(b)(3) shall not apply).

                                      CONCLUSION

        Based solely on the facts submitted and the 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 effective Date.

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

       Further, this ruling is contingent on X and its shareholder, A, filing federal income
tax returns consistent with the treatment of X as an S corporation.

       Except as specifically set forth above, we express or imply no opinion concerning
the tax consequences of the facts of this case under any other provision of the Code
and the regulations thereunder. In addition, we express or imply no opinion concerning
whether X is otherwise eligible to be an S corporation for federal tax purposes.

       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.
PLR-103509-22                                           3

      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.

        Pursuant to a power of attorney on file with this office, we are sending a copy of
this letter to X's authorized representative.



                                                               Sincerely,

                                                               Associate Chief Counsel
                                                               (Passthroughs & Special Industries)

                                                               /s/ Margaret Burow
                                                            By: ____________________________
                                                                Margaret Burow
                                                                Senior Counsel, Branch 3
                                                                Office of Associate Chief Counsel
                                                                (Passthroughs & Special Industries)

Enclosure:
      Copy for § 6110 purposes

cc:



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