Corporation receives relief for a late S election

Plain-English summary

A corporation’s shareholders intended it to be an S corporation from its formation date, but the company inadvertently failed to file Form 2553 on time. The IRS found reasonable cause for the late election under section 1362(b)(5). It granted the company 120 days to submit a completed Form 2553 using the intended effective date. If the company meets that condition, its S election will be treated as timely made. The ruling did not decide whether the company otherwise qualified as an S corporation.

Ruling snapshot

• Question: Could the corporation’s late S election be treated as timely made?
• Outcome: approved
• Key authorities: IRC § 1362(b)(5)

Full text (IRS public release)

Internal Revenue Service                                      Department of the Treasury
                                                              Washington, DC 20224

Number: 202247002                                             Third Party Communication: None
Release Date: 11/25/2022                                      Date of Communication: Not Applicable
Index Number: 1362.01-03
                                                              Person To Contact:
-----------------------------                                 ------------, ID No. -----------------
-------------------------------------------                   Telephone Number:
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-------------------------                                     Refer Reply To:
--------------------------------------                        CC:PSI:B03
                                                              PLR-104803-22
                                                              Date:
                                                              September 01, 2022

LEGEND

Company              = -----------------------------------------------------------------------------------------
                       -----------------------

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

Shareholders = ----------------------------------------------------------------

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

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

     This letter responds to a letter dated February 28, 2022, and subsequent
correspondence submitted on behalf of Company by its authorized representative,
requesting a ruling under § 1362(b)(5) of the Internal Revenue Code (Code).

                                                   FACTS

      The information submitted states that Company was organized as a corporation
under the laws of State on Date. Shareholders of Company intended for Company to
be an S corporation effective Date, but Company inadvertently failed to timely file a
Form 2553, Election by a Small Business Corporation.

PLR-104803-22                                2

                                         LAW

     Section 1362(a)(1) provides that, except as provided in § 1362(g), a small
business corporation may elect, in accordance with § 1362, 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 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) 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 shall be 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 (determined without regard to § 1362(b)(3)), after the date prescribed
by § 1362(b) for making the election for the taxable year or no § 1362(a) 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 the taxable year (and § 1362(b)(3) shall not apply).

                                    CONCLUSION

       Based solely on the facts submitted and the representations made, we conclude
that Company has established reasonable cause for failing to make a timely election to
be an S corporation and that Company is eligible for relief under § 1362(b)(5).
Accordingly, if Company makes an election to be an S corporation by filing with the
appropriate service center a completed Form 2553, containing an effective date of Date
for the election, within 120 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 Company’s Form
2553 filed with the service center.

      Except as expressly provided herein, we express or imply no opinion concerning
the federal tax consequences of any aspect of any transaction or item discussed or
referenced in this letter. Specifically, we express or imply no opinion concerning
whether Company is otherwise eligible to be 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.

     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-104803-22                                       3

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.

       Pursuant to a power of attorney on file with this office, we are sending a copy of
this letter to your authorized representative.

                                             Sincerely,

                                             /S/
                                             Mary Beth Carchia
                                             Senior Technician Reviewer, Branch 3
                                             Office of Associate Chief Counsel
                                             (Passthroughs & Special Industries)

Enclosure
     Copy of this letter for § 6110 purposes

cc -------------------------
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