Corporation received 120 days to file its late S election

Plain-English summary

A corporation's sole shareholder intended the company to be an S corporation from its formation date, but the company inadvertently failed to file Form 2553 on time. The IRS concluded that the company had reasonable cause for the missed election. It granted relief under section 1362(b)(5). The company had 120 days to file a completed Form 2553 with the requested effective date, and both the company and shareholder had to file federal returns consistently with S corporation treatment.

Ruling snapshot

• Question: Could the corporation's late S election be treated as timely from its intended effective date?
• Outcome: approved, conditioned on filing Form 2553 within 120 days and consistent returns
• Key authorities: IRC §§ 1362(a), 1362(b)(1), 1362(b)(3), and 1362(b)(5)

Full text (IRS public release)

 Internal Revenue Service                                 Department of the Treasury
                                                          Washington, DC 20224

 Number: 202401003                                        Third Party Communication: None
 Release Date: 1/5/2024                                   Date of Communication: Not Applicable
 Index Number: 1362.01-03
                                                          Person To Contact:
 ------------------------                                 ----------------------, ID No. -----------------
 ------------------------                                 Telephone Number:
 --------------------------                               --------------------
 ------------------------                                 Refer Reply To:
 ----------------------                                   CC:PSI:B03
                                                          PLR-107742-23
                                                          Date:
                                                          October 06, 2023




Legend
 X          =     ------------------------
                  ------------------------

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

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

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

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

       This letter responds to a letter dated December 31, 2022, submitted on behalf of
X by its authorized representatives, requesting a ruling under § 1362(b)(5) of the
Internal Revenue Code (Code).

                                                  FACTS

      Based on the information submitted, X was incorporated under the laws of State
on Date. A, X’s sole shareholder, intended for X to be an S corporation for federal tax
purposes effective Date, but X inadvertently failed to timely file a Form 2553, Election by
a Small Business Corporation.

                                             LAW AND ANALYSIS

      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

PLR-107742-23                                2

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 representations made, we conclude that
X has established reasonable cause for failing to make a timely S corporation election
effective Date. Thus, we conclude that X is eligible for relief under § 1362(b)(5).
Accordingly, provided that X makes an election to be an S corporation by filing a
completed Form 2553 effective Date with the appropriate service center within 120 days
from the date of this letter, then such election will be treated as timely made. 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. A copy of this letter should be
attached to the Form 2553.

       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 Code and the regulations thereunder. Specifically, no opinion is expressed or
implied concerning whether X otherwise qualifies as 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.

      This ruling is directed to the taxpayer requesting it. Section 6110(k)(3) of the
Code provides that it may not be used or cited as precedent.

PLR-107742-23                                  3


       Pursuant to a power of attorney on file with this office, a copy of this letter is
being sent to X's authorized representative.




                                        Sincerely,


                                        Robert D. Alinsky

                                        Robert D. Alinsky
                                        Chief, Branch 3
                                        Office of the Associate Chief Counsel
                                        (Passthroughs & Special Industries)

Enclosure
      Copy for § 6110 purposes



       cc: