Corporation receives relief for a late S election

Plain-English summary

A corporation intended to be taxed as an S corporation from a specified effective date but did not timely file the required election. The IRS found reasonable cause for the late filing and granted relief under section 1362(b)(5). The corporation will be recognized as an S corporation from the requested date if it otherwise qualifies. Within 120 days, it must submit a properly completed Form 2553 with the ruling attached and file any necessary original or amended returns consistent with the relief.

Ruling snapshot

• Question: May the corporation's late S election be treated as timely because it had reasonable cause?
• Outcome: Approved, subject to filing Form 2553 and required returns within 120 days.
• Key authorities: IRC §§ 1362(a), 1362(b)(2), and 1362(b)(5)

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201614025                                              Third Party Communication: None
Release Date: 4/1/2016                                         Date of Communication: Not Applicable
Index Number: 1362.00-00, 1362.01-03
                                                               Person To Contact:
-----------------------------------                            ------------------------------------, ----------------
--------------------------------                               ----------------
-----------------------------------                            Telephone Number:
-------------------------------------                          --------------------
                                                               Refer Reply To:
                                                               CC:PSI:B01
                                                               PLR-130294-15
                                                               Date:
                                                               December 21, 2015




Legend

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

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

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

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


Dear ----------------,

       This responds to a letter dated September 8, 2015, and subsequent
correspondence, submitted on behalf of X, requesting relief under § 1362(b)(5) of the
Internal Revenue Code.

                                           Facts
        According to the information submitted, X was incorporated on Date 1 under the
laws of State. X intended to be treated as an S corporation for Federal tax purposes
effective Date 2, but the proper election was not timely filed.

                                  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 that if an S election is made within the first two and one-half months
PLR-130294-15                                2



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. If the election is made after the first two and
one-half months of a corporation's taxable year, then the 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 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 file a timely election to be treated as an S corporation under § 1362(a)
effective Date 2. X has, however, established reasonable cause for not making a timely
election and is entitled to relief under § 1362(b)(5).

                                      Conclusion
      Based solely on the facts submitted and representations made, and provided that
X otherwise qualifies as a subchapter S corporation, we conclude that X will be
recognized as an S corporation effective Date 2.

       This ruling is contingent upon X, within 120 days from the date of this letter,
submitting a properly completed Form 2553, Election by a Small Business Corporation.
A copy of this letter should be attached to Form 2553. X must also file any necessary
original or amended returns consistent with the relief granted within 120 days of the
date of this letter.

       Except as expressly provided herein, no opinion is expressed or implied
concerning the tax consequences of any aspect of any transaction or item discussed or
referenced in this letter. Specifically, no opinion is expressed or implied concerning
whether X otherwise qualifies as 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. In accordance with the power of
PLR-130294-15                                   3


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

                                        Sincerely,

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

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


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