Reasonable cause found to treat a late S corporation election as timely on the intended date

Plain-English summary

A corporation's two shareholders intended it to be taxed as an S corporation starting from a specific date, but the company missed the deadline to file Form 2553 and mistakenly filed a regular C corporation return (Form 1120) for its first year, even though the shareholders themselves reported consistently with S status. When the company later sought late-election relief under Rev. Proc. 2013-30, the IRS granted it only from a later date (the earliest that revenue procedure allowed), not the originally intended date. The company then asked for a private letter ruling under section 1362(b)(5), which lets the IRS treat a late S election as timely when there was reasonable cause for the delay. The IRS concluded reasonable cause existed and ruled that, if the company files a completed Form 2553 effective the intended date within 120 days of the letter, the election will be treated as timely made. This matters to small businesses that miss the S election deadline and fall outside the automatic relief window: the statutory reasonable-cause route can still reach back to the originally intended effective date.

Ruling snapshot

• Question: Was there reasonable cause under § 1362(b)(5) to treat the corporation's S election as timely made effective the originally intended date?
• Outcome: Approved (relief granted, conditioned on filing Form 2553 within 120 days)
• Key authorities: IRC § 1362(b)(5) (and § 1362(a), (b)(1)); Rev. Proc. 2013-30

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202240015 Third Party Communication: None
Release Date: 10/7/2022 Date of Communication: Not Applicable
Index Number: 1362.01-03, 1362.00-00
Person To Contact:
--------------------------- --------------------, ID No. -----------------
-------------------------------- Telephone Number:
----------------------- --------------------
-------------------------- Refer Reply To:
------------------------------ CC:PSI:B01
PLR-109639-22
Date:
July 14, 2022

LEGEND

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

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

B = --------------------------------------------------------
-------------------------

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

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

Year 1 = -------

State = --------

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

This letter responds to your letter dated April 26, 2022, submitted on behalf of X,
requesting a ruling under § 1362(b)(5) of the Internal Revenue Code (Code).
PLR-109639-22 2

                                      FACTS

The information submitted states that X was incorporated under the laws of State. X’s
sole shareholders, A and B, intended for X to elect S corporation status for federal tax
purposes effective Date 1. However, X failed to timely file the Form 2553, Election by a
Small Business Corporation, for X effective Date 1. Additionally, X inadvertently filed
Form 1120, U.S. Corporation Income Tax Return, for X’s Year 1 taxable year rather
than Form 1120S, U.S. Income Tax Return for an S Corporation. Nevertheless, A and B
have filed tax returns consistent with X being an S corporation effective Date 1 and
thereafter. Upon discovery of the error, X sought relief under Rev. Proc. 2013-30, 2013-
36 I.R.B. 173 to make a late S corporation election effective Date 1. However, the
Service granted relief effective Date 2, the first date that X was eligible for relief under
Rev. Proc. 2013-30. Therefore, X requests a private letter ruling under § 1362(b)(5) that
its S corporation election will be treated as timely made effective Date 1.

                              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 15 th day of the third
month of the taxable year.

Section 1362(b)(3) provides that if (A) a small business corporation makes an election
under § 1362(a) for any taxable year, and (B) the 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 the election is treated as made for the following taxable 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 facts submitted and representations made, we conclude that X has
established reasonable cause for failing to make a timely S corporation election
effective Date 1. Thus, we conclude that X is eligible for relief under § 1362(b)(5).
Accordingly, provided that X makes an election to be an S corporation by filing a
completed Form 2553 effective Date 1 with the appropriate service center within 120
PLR-109639-22 3

days from the date of this letter, then such election will be treated as timely made. A
copy of this letter should be attached to the Form 2553.

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 and the regulations thereunder. Specifically, no opinion is expressed or implied
concerning whether X otherwise qualifies as an S corporation for federal tax purposes.

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
by an 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.

This ruling is directed to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.

Pursuant to a power of attorney on file with this office, a copy of this letter is being sent
to X’s authorized representatives.

                                    Sincerely,



                                By: __________________________
                                    Jennifer N. Keeney
                                    Senior Counsel, Branch 1
                                    Office of the Associate Chief Counsel
                                    (Passthroughs & Special Industries

Enclosure:
Copy of this letter for § 6110 purposes

cc: