Corporation receives 120 days to file a late S election

Plain-English summary

A corporation's sole shareholder intended the company to be an S corporation, but Form 2553 was not filed on time. The company requested late-election relief for a redacted effective date. It represented that it acted reasonably and in good faith, that relief would not prejudice the government, and that it was not using hindsight. The IRS found reasonable cause for the late election under section 1362(b)(5). It granted 120 days to file a completed Form 2553 with the requested effective date and a copy of the ruling. The IRS did not determine whether the company otherwise qualified as an S corporation.

Ruling snapshot

• Question: May the corporation's late S election be treated as timely for its requested effective date?
• Outcome: approved (the corporation received 120 days to file Form 2553)
• Key authorities: IRC § 1362(a), (b)(1), (b)(3), and (b)(5)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202019013 Third Party Communication: None
Release Date: 5/8/2020 Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
--------------------------------- ----------------------, ID No. -----------------
---------------------------- Telephone Number:
------------------------------- --------------------
------------------------------ Refer Reply To:
CC:PSI:B01
PLR-116742-19
Date:
January 13, 2020

LEGEND:

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

State = --------

Date 1 = ------------------

Date 2 = ----------------------

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

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

This letter responds to a letter dated June 21, 2019, submitted on behalf of X,
requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

Facts

The information submitted states that X was incorporated in State on Date 1. A, the
sole shareholder of X, intended for X to be an S corporation effective Date 1. However,
Form 2553, Election by a Small Business Corporation, was not timely filed.
Accordingly, X requests a ruling that it will be treated as an S corporation effective Date
2.

X represents that it has acted reasonably and in good faith, that granting relief will not
prejudice the interests of the government, and that it is not using hindsight in making the
election.

PLR-116742-19 2

Law and Analysis

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

Section 1362(b)(1) provides that an election under § 1362(a) may be made by a small
business corporation for any taxable year (A) at any time during the preceding taxable
year, or (B) at any time during the taxable year and on or before the 15th of the third
month of the taxable year.

Section 1362(b)(3) provides that if a small business corporation makes an election
under § 1362(a) for any taxable year, and such election is made after the 15th day of
the third month of the taxable year and on or before the 15th day of the third month of
the following taxable year, then such election will be treated as made for the following
year.

Section 1362(b)(5) provides that if (A) an election under § 1362(a) is made for any
taxable year after the date prescribed by § 1362(b) for making such election for such
taxable year or no such election is made for any taxable year, and (B) the Secretary
determines that there was reasonable cause for the failure to timely make such election,
the Secretary may treat such an election as timely made for such taxable year.

Conclusion

Based solely on the information submitted and the representations made, and provided
that X otherwise qualifies as an S corporation, we conclude that X has established
reasonable cause for failing to make a timely election to be an S corporation effective
Date 2.

Accordingly, provided that X makes an election to be an S corporation by filing a
completed Form 2553 effective Date 2, along with a copy of this letter, with the
appropriate service center within 120 days from the date of this letter, such election will
be treated as timely made for Date 2.

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.

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

PLR-116742-19 3

by the appropriate party. While this office has not verified any of the material submitted
in support of the ruling request, it is subject to verification on examination.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to X’s authorized representative.

                                  Sincerely,

                                  Laura C. Fields
                                  Laura C. Fields
                                  Senior Technician Reviewer, Branch 1
                                  (Passthroughs & Special Industries)

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

cc: