PLR 200003029: Late S election recognized from incorporation date

Plain-English summary

A corporation's shareholders intended S corporation treatment to begin on its incorporation date, but the election was filed late. The IRS found reasonable cause for the delay and granted relief under § 1362(b)(5). It concluded that the corporation would be recognized as an S corporation from that date, provided it otherwise qualified. The corporation was directed to submit a completed Form 2553 with the ruling attached within 60 days of the letter.

Ruling snapshot

• Question: Could the corporation obtain S corporation treatment from its incorporation date despite the late election?
• Outcome: Approved, provided the corporation otherwise qualified and submitted Form 2553 within 60 days.
• Key authorities: IRC § 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service                       Department of the Treasury

Index Number:       1362.01-03                 Washington, DC 20224


Number: 200003029                              Person to Contact:
Release Date: 1/21/2000                        Telephone Number:

                                               Refer Reply To:
                                               CC:DOM:P&SI:Br.1 - PLR-114498-99
                                               Date:
                                               October 25, 1999




      Legend:

      X      =


      State =

      D1     =




      This responds to your letter dated June 30, 1999, submitted on behalf of X
requesting relief under section 1362(b)(5) of the Internal Revenue Code.

                                        FACTS

       X was incorporated under State law on D1. The shareholders of X intended that
X elect to be treated as an S corporation for federal tax purposes effective D1.
However, the election to be treated as an S corporation was not timely filed.

                                 LAW AND ANALYSIS

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

       Section 1362(b) provides when an S election becomes effective. If an S election
is made within the first two and one-half months of a corporation’s taxable year, then
that corporation will be treated as an S corporation for the year in which the election
was made. If an election is made after the first two and one-half months of a
corporation’s taxable year, then the corporation will generally not be treated as an S
corporation until the following taxable year.

                                              2
PLR-114498-99

        However, section 1362(b)(5) provides that if no election is made pursuant to
section 1362(a), or if the election is made after the date prescribed for making such an
election, and the Secretary determines reasonable cause existed for the failure to
timely make the election, then the Secretary can treat such an election as timely made
for that taxable year and effective as of the first day of that taxable year.

      In the present case, X failed to timely elect S corporation treatment effective D1.
However, X has established reasonable cause for not making a timely election and is
thus entitled to relief under section 1362(b)(5).

                                      CONCLUSION

       Based solely on the facts submitted and representations made, and provided
that X otherwise qualifies as a subchapter S corporation, we conclude that X will be
recognized as an S corporation effective D1. Within 60 days from the date of this letter,
X should submit a properly completed Form 2553, with a copy of this letter attached, to
the relevant service center.

       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.

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

         In accordance with the Power of Attorney on file with this office, a copy of this
letter is being sent to the taxpayer .


                                               Sincerely,


                                              Signed/Dianna K. Miosi
                                              Dianna K. Miosi
                                              Chief, Branch 1
                                              Office of the Assistant Chief Counsel
                                              (Passthroughs & Special Industries)


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