IRS grants a corporation reasonable-cause relief for a late S corporation election

Plain-English summary

A corporation meant to be taxed as an S corporation (a pass-through, so the
company itself pays no federal income tax) and filed its returns that way from
the start, but it never filed the required election form (Form 2553) on time.
Code Section 1362(b)(5) lets the IRS forgive a late S election if the company had
reasonable cause for missing the deadline. The IRS found reasonable cause and
ruled the election will be treated as timely made for the year it intended to
start being an S corporation, on the condition that the company files a proper
Form 2553 within 120 days. The IRS expressed no opinion on whether the company
otherwise qualifies as an S corporation.

Ruling snapshot

• Question: Should the company get relief under § 1362(b)(5) to treat its late S corporation election as timely?
• Outcome: Approved (reasonable-cause relief granted, subject to filing Form 2553 within 120 days)
• Key authorities: IRC § 1362(b)(5); IRC § 1362(a), (b); IRC § 1361(a)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201845028
Release Date: 11/9/2018
Index Number: 1362.00-00, 1362.01-03, 9100.00-00

Third Party Communication: None
Date of Communication: Not Applicable

Person To Contact:
--------------------, ID No. ------------------
Telephone Number:

Refer Reply To:
CC:PSI:01
PLR-117066-18

Date:
July 31, 2018

LEGEND

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

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

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

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

This letter responds to your request dated June 22, 2018, and subsequent
correspondence submitted on behalf of X, requesting a ruling under § 1362(b)(5) of the
Internal Revenue Code (Code).

                                                  FACTS

X was incorporated under the laws of State on Date. It is represented that X intended to
be an S corporation effective Date. Since Date, X has filed tax returns consistent with S
corporation treatment.

However, X's Form 2553, Election by a Small Business Corporation, was not timely
filed. X requests a ruling under § 1362(b)(5) that its § 1362(a) election will be treated as
timely made for its tax year that began on Date.

                                       LAW AND ANALYSIS

PLR-117066-18 2

Section 1361(a) provides that the term "S corporation" means, with respect to any
taxable year, a small business corporation for which an election under § 1362(a) is in
effect for such year.

Section 1362(a) generally provides that a small business corporation may elect to be an
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

                                 CONCLUSIONS

Based upon the facts submitted and representations made, we conclude that X has
established reasonable cause for not making a timely election and is eligible for relief
under § 1362(b)(5). Accordingly, X's S corporation election will be treated as timely
made for its taxable year that began on Date.

This ruling is contingent on X filing Form 2553, Election by a Small Business
Corporation, with an effective date of Date, with the appropriate Service Center within
120 days from the date of this ruling. A copy of this letter should be attached to the
Form 2553 filed with the Service Center.

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 X otherwise
qualifies as an S corporation for federal tax purposes.

This rule is directed only to the taxpayer who requested it. According to § 6110(k)(3) of
the Code, this ruling may not be used or cited as precedent.

PLR-117066-18 3

This 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,

                                    Associate Chief Counsel
                                    (Passthroughs & Special Industries)

                                    Wendy L. Kribell
                              By:
                                    Wendy L. Kribell
                                    Assistant to the Branch Chief, Branch 1
                                    (Passthroughs & Special Industries)

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

cc: