Late S corporation election allowed with a 120-day filing condition

Plain-English summary

A corporation intended to be treated as an S corporation beginning on a redacted effective date, but it 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 the corporation's S status from the intended date, provided the corporation otherwise qualified for S corporation treatment. The corporation had to submit a properly completed Form 2553 with a copy of the ruling to the appropriate service center within 120 days.

Ruling snapshot

• Question: May the corporation's late S election be treated as timely effective on its intended date?
• Outcome: approved, if Form 2553 is properly filed within 120 days and the corporation otherwise qualifies
• 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: 201943019                                           [Third Party Communication:
Release Date: 10/25/2019                                    Date of Communication: Month DD, YYYY]
Index Number: 1362.00-00, 1362.01-03
                                                            Person To Contact:
--------------------------------------                      -----------------, ID No. -----------
---------------------------------                           Telephone Number:
----------------------------                                ----------------------
---------------------------                                 Refer Reply To:
                                                            CC:PSI:01
                                                            PLR-135441-18
                                                            Date:
                                                            July 02, 2019




Legend

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

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

D1                 = ----------------------



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

This responds to a letter dated October 16, 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 under the laws of State. X
intended to be treated as an S corporation for Federal tax purposes effective D1, 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
PLR-135441-18                                2

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 D1. 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 D1 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) of the Code
provides that it may not be used or cited as precedent.


                                      Sincerely,

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



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


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