Internal Revenue ServicePage 1
Associate Chief Counsel (Passthroughs and Special Industries)[Current Date]
Statement of Proposed Deletions Under Code Section 6110
ABC Company
EIN:
We request that the names, addresses and other identifying details of the persons to whom the written determination pertains and of any other person, other than a person with respect to whom a notation is made under Subsection 6110(d)(1), identified in the written determination or any background file be deleted from disclosure under Section 6110(c) of the Internal Revenue Code.
Respectfully submitted,
[Name of Submitter]
[NOTE: TAXPAYER SHOULD ENSURE THAT IT IS NOT ELIGIBLE TO UTILIZE THE SIMPLIFIED PROCEDURE FOR PERFECTING LATE S CORPORATION ELECTIONS PURSUANT TO REV. PROC. 2003-43 BEFORE FILING A PRIVATE LETTER RULING REQUEST WITH THE IRS NATIONAL OFFICE].
[Current Date]
Internal Revenue Service
Associate Chief Counsel (Passthroughs and Special Industries)
Attn: CC:PA:T
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044
Ruling Request Under Code Section 1362(b)(5)
Dear Sir or Madam:
It is respectfully requested that the Form 2553, Election by a Small Business Corporation, filed by ABC Company (“ABC”) on or about [Date], be treated as timely filed for ABC’s taxable year beginning January 1, 200X, pursuant to Section 1362(b)(5) of the Internal Revenue Code of 1986, as amended (“Code”).
A.Statement of Facts
1.Taxpayer Information
ABC is a corporation organized under the laws of the State of [State]. Its corporate headquarters is located at [Address]. ABC’s telephone number is [Telephone Number] and its taxpayer identification number is [EIN].
ABC operates on a calendar year and uses the accrual method as its overall method of accounting.
ABC has [Number] shares of common stock outstanding. Information with respect to ABC’s shareholders is as follows:
Number / Taxpayer / Overall / AnnualName, Address and / of Shares / Identification / Method of / Accounting
Telephone Number / Owned / Number / Accounting / Period
2.IRS District Office Having Examination Jurisdiction
The [insert division name] Division of the IRS has examination jurisdiction over the Taxpayer’s tax returns.
3.Description of Taxpayer’s Business Operations
ABC’s principal business is [Description of Principal Business].
4.Facts Relating to Transaction
[Facts Relating to Transaction].
ABC and its shareholders make the following representations:
- ABC qualified as a “small business corporation”[1] on January 1, 200X and at all times thereafter;
- ABC and its shareholders intended to elect S corporation status for ABC’s tax year beginning January 1, 200X; and
- ABC and its shareholders are willing to make any adjustments that may be required by the Secretary, consistent with treating ABC’s S corporation election as timely filed for its tax year beginning January 1, 200X.
B.Ruling Requested
The following ruling is requested:
It is respectfully requested that the Form 2553 filed by ABC on or about [Date], be treated as timely filed for ABC’s tax year beginning January 1, 200X, such that ABC will be treated as an S corporation for its 200X tax year. This request is made pursuant to Section 1362(b)(5) of the Code.
C.Statement of Law
In order to be an S corporation, a valid S election must be filed under Code Section 1362(a).[2] The due date for filing an S election is set forth in Code Section 1362(b) and the regulations thereunder. Code Section 1362(b)(1) provides as follows:
When Made.—
(1)In general.—An election under subsection (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 3d month of the taxable year.
On August 20, 1996, President Clinton signed into law the Small Business Job Protection Act of 1996 (“Act”).[3] Act Section 1305(b) amended Code Section 1362(b) by adding Code Section 1362(b)(5), as follows:
Authority to treat late elections, etc. as timely.—If—
(A)an election under subsection (a) is made for any taxable year (determined without regard to paragraph (3)) after the date prescribed by this subsection 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 (and paragraph (3) shall not apply).
The amendment to Code Section 1362(b), adding Code Section 1362(b)(5), is effective for taxable years beginning after December 31, 1982.[4]
The Committee Reports to the Act, in discussing Section 1362(b)(5) of the Code state, in part:
The provision also allows the IRS to treat a late Subchapter S election as timely where the Service determines that there was reasonable cause for the failure to make the election timely. The IRS may exercise this authority in cases where the taxpayer never filed an election. It is intended that the IRS be reasonable in exercising this authority and apply standards that are similar to those applied under present law to inadvertent subchapter S terminations and other late or invalid elections.
To date, the Service has not issued guidance defining “reasonable cause” for the untimely filing of an S corporation election. However, as indicated above, Congress intends that the Service will apply standards similar to those under present law relating to late elections. The Service frequently grants taxpayers extensions of time for making elections where the due date is not prescribed by statute pursuant to Reg. Section 301.9100. Based on Congressional intent, it is reasonable to assume that the Service will apply standards similar to those set forth in Reg. Section 301.9100 in deciding whether to grant an extension of time under Code Section 1362(b)(5).
In order to obtain an extension of time under Reg. Section 301.9100, a taxpayer must demonstrate that it acted “reasonably and in good faith” and that granting relief will not prejudice the interests of the government.[5]
Regulation Section 301.9100-3(b)(1) provides that a taxpayer is deemed to have acted reasonably and in good faith if the taxpayer:
(i)Requests relief under this section before the failure to make the regulatory election is discovered by the IRS,
(ii)Failed to make the election because of intervening events beyond the taxpayer’s control,
(iii)Failed to make the election because, after exercising reasonable diligence (taking into account the taxpayer’s experience and the complexity of the return or issue), the taxpayer was unaware of the necessity for the election,
(iv)Reasonably relied on the written advice of the IRS, or
(v)Reasonably relied on a qualified tax professional, including a tax professional employed by the taxpayer, and the tax professional failed to make, or advise the taxpayer to make, the election.
Under Reg. Section 301.9100-3(b)(3), a taxpayer is deemed to have not acted reasonably or in good faith if the taxpayer:
(i)Seeks to alter a return position for which an accuracy-related penalty has been or could be imposed under Code Section 6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested,
(ii)Was fully informed of the required election and related tax consequences, but chose not to file the election, or
(iii)Uses hindsight in requesting relief.
Regulation Section 301.9100-3(c)(1) provides that the interests of the government will be deemed prejudiced if:
(i)Granting relief would result in a taxpayer having a lower tax liability in the aggregate for all years to which the regulatory election applies than the taxpayer would have had if the election had been timely made,
(ii) Extending the time for making the election may result in the affected taxpayers, in the aggregate, having a lower tax liability than if the election had been timely made (where the affected taxpayers are those whose tax consequences are affected by the election), or
(iii)If the tax year in which the regulatory election should have been made or any tax years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under Code Section 6501(a) before the taxpayer’s receipt of a ruling granting relief under this section.
D.Analysis
Assuming standards similar to those that apply in granting relief for the failure to timely file a regulatory election apply for purposes of granting relief under Code Section 1362(b)(5), ABC satisfies the requirements for relief.[6]
[Analysis of Facts Under Standards Set Forth in Reg. Section 301.9100-3(b)(1)].
Neither ABC nor its shareholders are seeking to alter a return position for which an accuracy-related penalty has been or could have been imposed under Code Section 6662. ABC and its shareholders intended to elect S corporation status for ABC’s taxable year beginning 200X and are not using hindsight in requesting relief.
The interests of the Government would not be prejudiced by granting the extension nor would undue administrative burdens be caused. In this case, granting relief would not result in ABC or its shareholders having a lower tax liability in the aggregate for all years to which the election applies than ABC or its shareholders would have had if the election had been timely made. Furthermore, granting relief will not affect any tax years that are closed by the period of limitations on assessment under Code Section 6501(a). By granting this request, the taxpayer is placed in no better position than if the election had been made in a timely manner.
The period of limitations on assessment under Code Section 6501(a) has not lapsed for the tax year beginning January 1, 200X, for either the corporation or its shareholders.
E.Conclusion
Based upon the above analysis, ABC’s request to treat its S election filed on or about [Date], as effective for its taxable year beginning January 1, 200X, should be granted under Code Section 1362(b)(5).
F.Procedural Matters
1.Revenue Procedure 2005-1 Statements [NOTE: THE IRS UPDATES THIS REVENUE PROCEDURE EACH YEAR.]
To the best of the knowledge of Taxpayer, Taxpayer’s shareholders and Taxpayer’s representative:
a.Except for the late S corporation election addressed in this request, the issue raised by this ruling request is not in an earlier return of the taxpayer (or in a return for any year of a related taxpayer within the meaning of Code Section 267, or a member of an affiliated group of which the taxpayer is also a member within the meaning of Code Section 1504).
b.The Service has not previously ruled on the same or similar issue for the taxpayer (or a related taxpayer within the meaning of Code Section 267, or a member of an affiliated group of which the taxpayer is also a member within the meaning of Code Section 1504) or a predecessor.
c.Taxpayer, a related taxpayer, a predecessor, or any representative has not previously submitted a request involving the same or a similar issue to the Service but withdrawn it before a letter ruling or determination letter was issued.
d.Taxpayer, a related taxpayer, a predecessor, or any representative has not previously submitted a request involving the same or similar issue that is currently pending with the Service.
e.Taxpayer or a related taxpayer is not presently submitting another request involving the same or a similar issue to the Service.
f.The law in connection with the requested ruling is not uncertain and the issue is adequately addressed by relevant authorities.
g.Taxpayer is not aware of any authority contrary to the position advanced or of any pending legislation that would affect the requested ruling.
h.A conference is requested if you do not propose to rule in the manner requested or if you at any time would find a conference helpful in processing this ruling request. To arrange a conference or to obtain additional information, please telephone the undersigned at [Telephone Number].
i.We request that a copy of the ruling letter be sent by facsimile (fax) transmission. The facsimile transmission should be sent to the undersigned at [Fax Number]. Taxpayer waives any rights concerning disclosure violations that may result from the facsimile transmission.
2.Administrative
a.The deletions statement and checklist required by Revenue Procedure 2005-1 are enclosed.
b.The required user fee of $7,000 is enclosed [ENSURE TAXPAYER DOES NOT QUALIFY FOR REDUCED USER FEE OF $500 FOR CERTAIN BUSINESSES WITH LESS THAN $1 MILLION IN “GROSS INCOME” (SEE APPENDIX A TO REV. PROC. 2005-1 FOR DETAILS)].
c.A power of attorney on Form 2848 is enclosed, authorizing the undersigned to act on behalf of ABC in connection with this ruling request. Please address the ruling letter in accordance with the power of attorney. As instructed on Form 2848, please mail the original of the letter ruling to the undersigned.
Please direct the initial 21-day call described in Section 10.02, Revenue Procedure 2005-1, and any other inquiries concerning this request to the undersigned.
Respectfully submitted,
[Name of Submitter]
Enclosures:
Revenue Procedure 2005-1 Checklist
Check for User Fee
Statement of Proposed Deletions Under Code Section 6110
Power of Attorney (Form 2848)
Penalties of Perjury Statement
[Current Date]
Internal Revenue Service
Associate Chief Counsel (Passthroughs and Special Industries)
Attn: CC:PA:T.
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044
Ruling Request Under Code Section 1362(f) [NOTE: THIS RULING REQUEST SEEKS A WAIVER OF INADVERTENT TERMINATION]
Dear Sir or Madam:
ABC Company (“ABC”) requests a ruling that the termination of its S election was inadvertent and that it be granted a waiver of such termination under Section 1362(f) of the Internal Revenue Code of 1986, as amended (the “Code”).
A.Statement of Facts
1. Taxpayer Information
ABC is a corporation organized under the laws of the State of [State]. Its corporate headquarters is located at [Address]. ABC’s telephone number is [Telephone Number] and its taxpayer identification number is [EIN].
ABC operates on a calendar year and uses the accrual method as its overall method of accounting.
ABC filed a valid election to be treated as an S corporation under Code Section 1362(a), effective for its taxable year beginning January 1, 200X.
ABC has [Number] shares of common stock outstanding. Information with respect to ABC’s shareholders is as follows:
Number / Taxpayer / Overall / AnnualName, Address and / of Shares / Identification / Method of / Accounting
Telephone Number / Owned / Number / Accounting / Period
2.IRS District Office Having Examination Jurisdiction
The [insert divsision name] Division of the IRS has examination jurisdiction over Taxpayer’s tax returns.
3.Description of the Taxpayer’s Business Operations
ABC’s principal business is [Description of Principal Business].
4..Facts Relating to Transaction
[Facts Relating to Transaction].
B.Rulings Requested
The following rulings are requested:
1. The termination ABC’s S election was an inadvertent termination within the meaning of Section 1362(f) of the Code.
2. Pursuant to Code Section 1362(f), ABC will be treated as continuing to be an S corporation during the period from [Date of Termination] through [Date of Requalification as a Small Business Corporation], and for subsequent years unless its S election is otherwise terminated under the provisions of Code Section 1362(d).
C.Statement of Law
Code 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 Code Section 1362(a) is in effect for such year. A “small business corporation” is defined in Code Section 1361(b)(1) as “a domestic corporation which is not an ineligible corporation and which does not—
(A) have more than 100 shareholders,
(B) have as a shareholder a person (other than an estate, a trust described in subsection (c)(2), or an organization described in subsection (c)(6)) who is not an individual,
(C) have a nonresident alien as a shareholder, and
(D) have more than 1 class of stock.”
[Detailed Analysis of Specific Eligibility Requirement Violated, if Applicable].
Code Section 1362(d)(2)(A) provides that an election under Code Section 1362(a) terminates whenever (at any time on or after the first day of the first taxable year for which the corporation is an S corporation) such corporation ceases to be a small business corporation. Under Code Section 1362(d)(2)(B), the termination is effective on and after the date of cessation.
Code Section 1362(f) grants the Secretary authority to waive the inadvertent termination of an S election, providing as follows:
Inadvertent Invalid Elections or Terminations.—If—
(1)an election under subsection (a) by a corporation—
(A)was not effective for the taxable year for which made (determined without regard to subsection (b)(2)) by reason of a failure to meet the requirements of section 1361(b) or to obtain shareholder consents, or
(B)was terminated under paragraph (2) or (3) of subsection (d),
(2)the Secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent,
(3)no later than a reasonable period of time after discovery of the circumstances resulting in such ineffectiveness or termination, steps were taken—
(A)so that the corporation is a small business corporation, or
(B)to acquire the required shareholder consents, and
(4)the corporation, and each person who was a shareholder in the corporation at any time during the period specified pursuant to this subsection agrees to make such adjustments (consistent with the treatment of the corporation as an S corporation) as may be required by the Secretary with respect to such period,
then, notwithstanding the circumstances resulting in such ineffectiveness or termination, such corporation shall be treated as an S corporation during the period specified by the Secretary.
S. Rep. No. 97-640, 97th Cong., 2d Sess. 12 (1982), 1982-2 C.B. 718, 723-24, in discussing Section 1362(f) of the Code states, in part:
If the Internal Revenue Service determines that a corporation’s subchapter S election is inadvertently terminated, the Service can waive the effect of the terminating event for any period if the corporation timely corrects the event and if the corporation and the shareholders agree to be treated as if the election had been in effect for such period.
The committee intends that the Internal Revenue Service be reasonable in granting waivers, so that corporations whose subchapter S eligibility requirements have been inadvertently violated do not suffer the tax consequences of a termination if no tax avoidance would result from the continued subchapter S treatment. In granting a waiver, it is hoped that taxpayers and the government will work out agreements that protect the revenues without undue hardship to taxpayers . . . . It is expected that the waiver may be made retroactive for all years, or retroactive for the period in which the corporation again became eligible for subchapter S treatment, depending on the facts.