Corporation received relief for a late S corporation election

Plain-English summary

A corporation intended to be an S corporation from its formation date and filed returns consistently with that treatment. Its Form 2553 election, however, was not filed on time. The IRS concluded that the corporation had reasonable cause for the late election and granted relief under section 1362(b)(5). The election would be treated as timely for the intended first tax year if the corporation filed Form 2553 within 120 days. The IRS did not rule on whether the corporation otherwise qualified for S corporation status.

Ruling snapshot

• Question: May the corporation's late S corporation election be treated as timely from its intended effective date?
• Outcome: approved, conditioned on filing Form 2553 within 120 days
• Key authorities: IRC §§ 1361(a), 1362(a), 1362(b)(5)

Full text (IRS public release)

Internal Revenue Service                                   Department of the Treasury
                                                           Washington, DC 20224

Number: 201944004                                          Third Party Communication: None
Release Date: 11/1/2019                                    Date of Communication: Not Applicable
Index Numbers: 1362.00-00, 1362.01-03
                                                           Person To Contact:
------------------------------------                       --------------------, ID No. ----------------
--------------------------------------------               Telephone Number:
----------------------------------------                   --------------------
----------------------------------------                   Refer Reply To:
                                                           CC:PSI:B03
                                                           PLR-102037-19
                                                           Date:
                                                           August 5, 2019



LEGEND

X           = ------------------------------------------
---------------------------------------------
---------
State = --------------

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


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


This letter responds to your request dated December 18, 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.

PLR-102037-19                                 2

                                  LAW AND ANALYSIS

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(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.

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

PLR-102037-19                                 3

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.

Under a power of attorney on file with this office, we are sending a copy of this letter to
X's authorized representative.


                                              Sincerely,

                                              Associate Chief Counsel
                                              (Passthroughs & Special Industries)



                                          By:_____________________________
                                             Stacy L. Short
                                             Senior Technician Reviewer, Branch 3
                                             Office of the Associate Chief Counsel
                                             (Passthroughs & Special Industries)



Enclosures: Copy of this letter
            Copy of this letter for § 6110 purposes