We are pleased to share a recent success story that highlights how careful legal strategy and a strong understanding of tax procedure can make a real difference for business owners.
One of our clients—a single-member limited liability company—intended to be taxed as an S corporation from the moment it was formed. However, like many small businesses focused on growth and operations, the client inadvertently missed the IRS deadline to file Form 2553, which is required to elect S corporation status. Without that election, the business risked being taxed as a default entity, which could have had significant consequences for its long-term tax planning.
Fortunately, the Internal Revenue Code provides a possible remedy under Section 1362(b)(5), which allows a late S corporation election to be treated as timely if the business can demonstrate “reasonable cause” for the delay. On behalf of our client, we submitted a Private Letter Ruling (PLR) request to the IRS explaining the circumstances and requesting relief.
Last week, we received the official response from the IRS in which the request was granted and the client’s S corporation status will be recognized retroactively to the originally intended effective date. The ruling allows the client to move forward with the assurance that its tax treatment is aligned with its original plan.
Why This Matters
Mistakes like a late Form 2553 filing happen more often than many small business owners realize, but the IRS does offer potential relief through a private letter ruling process. The good news is that there are solutions available, if you act quickly and present the right case.
This outcome not only avoided potentially costly tax consequences for our client, but also reaffirmed the value of proactive legal and tax counsel when navigating entity formation and IRS compliance.
Whether you are forming a new business or correcting a past filing oversight, our team can guide you through the process—from entity selection and structure to compliance strategies and IRS advocacy.
Need Help with an S Corporation Election or IRS Ruling?
If your business is dealing with tax compliance issues, our team can help you explore options such as a private letter ruling under IRC §1362(b)(5). Contact Cooper Levenson’s Business & Tax practice group to discuss your options.
Steven Land is an attorney in Cooper Levenson’s Business & Tax practice group in its Atlantic City office. He concentrates his practice on business transactions, mergers and acquisitions, tax matters, and estate planning. Steven may be reached at (609) 572-7530 or via e-mail at sland@cooperlevenson.com.
The content of this post should not be construed as legal advice. You should consult a lawyer concerning your particular situation and any specific legal question you may have.