A newly formed corporation gets to fix a late S election

Plain-English summary

A corporation's sole owner wanted the company to be taxed as an S corporation from the day it was incorporated, but the company never filed its Form 2553 (the S election) on time. Under § 1362(b)(5), the IRS can treat a late S election as timely if the corporation shows reasonable cause for the delay. The IRS found reasonable cause here and granted relief: as long as the company files a completed Form 2553 with the original intended effective date within 120 days of the letter, the election will be treated as timely. Relief is conditioned on the company and its shareholder filing any original or amended returns needed to be consistent with S corporation treatment for the affected years. This is the routine cure for a small business that simply missed the S-election filing deadline.

Ruling snapshot

• Question: Does the corporation have reasonable cause for filing its S election late, so the election can be treated as timely under § 1362(b)(5)?
• Outcome: Approved (late S election relief granted; file Form 2553 within 120 days).
• Key authorities: IRC §§ 1362(a), 1362(b), 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service                                        Department of the Treasury
                                                                Washington, DC 20224

Number: 201831008                                               Third Party Communication: None
Release Date: 8/3/2018                                          Date of Communication: Not Applicable
Index Number: 1362.00-00, 1362.01-00,
              1362.01-01                                        Person To Contact:
                                                                ------------------------, ID No. ------------------
---------------------------------------                         ----------------------------------------------------
-------------------------------------                           Telephone Number:
------------------------                                        --------------------
-----------------------------------------------------           Refer Reply To:
                                                                CC:PSI:03
                                                                PLR-133725-17
                                                                Date:
                                                                May 08, 2018


                                                        Legend

Company                    =         --------------------------------------
-------------------------------------------------------------

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

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

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



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

This letter responds to a letter dated October 13, 2017, and subsequent
correspondence, submitted on behalf of Company by its authorized representative
requesting a ruling under §1362(b)(5) of the Internal Revenue Code (Code).

                                                        Facts

Company was incorporated under State law on Date. Company’s sole shareholder, A,
intended for Company to be an S corporation as of Date. However, Company’s Form
2553, Election by a Small Business Corporation, was not filed timely. Company
requests a ruling that it will be recognized as an S corporation effective Date.

                                                         Law

Section 1362(a) generally provides that a small business corporation may elect to be an
PLR-133725-17                                 2

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 Company
has established reasonable cause for not making a timely election and is eligible for
relief under § 1362(b)(5). Accordingly, if Company makes an election to be an S
corporation by filing with the appropriate service center a completed Form 2553 with an
effective date of Date, within 120 days following the date of this letter, then such
election will be treated as timely made. A copy of this letter should be attached to the
Form 2553 filed with the service center. A copy is enclosed for that purpose.

This ruling is contingent on Company and its sole shareholder, A, filing, within 120 days
from the date of this letter, any original or amended federal income tax returns
necessary to be consistent with the treatment of Company as an S Corporation for each
of the tax years affected by this letter. A copy of this letter should be attached to these
returns.

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. Specifically, we express or imply no opinion concerning whether Company
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.
PLR-133725-17                               3


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 the support of the ruling request, it is subject to verification on examination.

                                     Sincerely,



                                     ______________________________
                                     Caroline E. Hay
                                     Assistant to the Branch Chief, Branch 3
                                     Office of the Associate Chief Counsel
                                     (Passthroughs & Special Industries)



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



cc: