Corporation receives relief for a late S election

Plain-English summary

A corporation intended to be treated as an S corporation from a specified date but did not timely file the required election. The IRS found reasonable cause for the late filing under section 1362(b)(5). It agreed to recognize S corporation status from the intended effective date if the corporation otherwise qualifies. The corporation must submit a properly completed Form 2553 with a copy of the ruling within 120 days.

Ruling snapshot

• Question: Could the corporation's late S election be treated as timely from its intended effective date?
• Outcome: approved, if Form 2553 is filed 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: 201717009                                      Third Party Communication: None
Release Date: 4/28/2017                                Date of Communication: Not Applicable
Index Number: 1362.01-03
                                                       Person To Contact:
----------------------------------                     ----------------------, ID No. -----------------
--------------                                         Telephone Number:
------------------                                     ---------------------
------------------------------                         Refer Reply To:
                                                       CC:PSI:1
                                                       PLR-125439-16
                                                       Date:
                                                       January 11, 2017




Legend

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

State =           ------

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

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

This responds to a letter dated August 8, 2016, submitted on behalf of X by X’s
authorized representative, requesting relief under § 1362(b)(5) of the Internal Revenue
Code.

                                                  FACTS

According to the information submitted, X was incorporated under the laws of State on
Date. X intended to be treated as an S corporation for Federal tax purposes effective
Date, 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 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
PLR-125439-16                                  2

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. 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 if, within 120 days from the date of this
letter, X submits a properly completed Form 2553, with a copy of this letter attached, to
the appropriate service center.

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

                                        Sincerely,


                                        Joy C. Spies
                                        Joy C. Spies
                                        Senior Technician Reviewer, Branch 1
                                        Office of the Associate Chief Counsel
                                        (Passthroughs & Special Industries)

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

cc: