Late S-corporation election excused for reasonable cause under § 1362(b)(5)

Plain-English summary

A corporation intended to be taxed as an S corporation from the day it was incorporated but never filed the required election (Form 2553) on time. It asked the IRS for relief under Internal Revenue Code § 1362(b)(5), which lets the IRS treat a late S-corporation election as timely when the taxpayer had reasonable cause for the delay. The IRS found reasonable cause and ruled that the company will be recognized as an S corporation as of its intended effective date, provided it files a proper Form 2553 (with a copy of the ruling attached) within 120 days. This is a routine cleanup that preserves the pass-through tax treatment the company expected. The IRS took no position on whether the company otherwise qualifies as an S corporation.

Ruling snapshot

• Question: Was there reasonable cause to treat the corporation's late S-election as timely under § 1362(b)(5)?
• Outcome: Approved (S-corporation status recognized as of the intended date, contingent on filing 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: 201845013                     Third Party Communication: None
Release Date: 11/9/2018               Date of Communication: Not Applicable
Index Number: 1361.01-00, 1362.01-03
                                      Person To Contact:
------------------------------------  ---------------------------------, ID No. ---------
---------------------------------     ------------------
-----------------------------------   Telephone Number:
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                                      Refer Reply To:
                                      CC:PSI:B01
                                      PLR-104979-18
                                      Date:
                                      July 30, 2018



LEGEND

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

D        =        --------------------

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



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

This responds to a letter dated February 2, 2018, 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 D under the laws of
State. X intended to be treated as an S corporation for Federal tax purposes effective
D, 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
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 D. 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 D 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,

                                        Laura C. Fields
                                        Laura C. Fields
                                        General Attorney, Branch 1
                                        Office of the Associate Chief Counsel
                                        (Passthroughs & Special Industries)


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


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