PLR 200003030: Late S election treated as timely for first taxable year

Plain-English summary

A corporation with two shareholders intended to be an S corporation from incorporation and operated that way. It discovered after its first taxable year that its S election had not been filed on time. The IRS ruled that its election would be treated as timely for that first year if it filed Form 2553 with the specified effective date within 60 days and attached the ruling letter. The IRS gave no opinion on whether the corporation otherwise qualified as an S corporation.

Ruling snapshot

• Question: Could the corporation's late S election be treated as timely for its first taxable year?
• Outcome: Approved, contingent on filing Form 2553 within 60 days.
• Key authorities: IRC § 1362(a), (b)(3), and (b)(5).

Full text (IRS public release)

Internal Revenue Service                        Department of the Treasury

Index Number:       U.I.L. No.: 1362.01-03      Washington, DC 20224



                                                Person to Contact:
Number: 200003030                               Telephone Number:
Release Date: 1/21/2000
                                                Refer Reply To:
                                                CC:DOM:P&SI:3 PLR-111963-99
                                                Date:
                                                October 25, 1999



Legend

Company             =


State               =

Shareholders        =




a                   =




      This letter responds to a letter dated July 1, 1999, requesting a ruling on behalf
of Company under § 1362(b)(5) of the Internal Revenue Code.

       The information submitted discloses that Company was incorporated on a in
State. Company has two shareholders, Shareholders. It is represented that Company
has intended to be an S corporation since its incorporation.

        Believing itself to be an S corporation, Company has operated accordingly since
a. After the end of its taxable year beginning on a, however, Company discovered that
its S election had not been timely filed.

      Company requests a ruling that its § 1362(a) election will be treated as timely
made for its taxable year that begins on a.

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

PLR-111963-99                               2


       Section 1362(b) explains when an S election will be effective. Generally, 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 is made. Section 1362(b)(3) provides that if an S election is made after the first
two and one half months of a corporation’s taxable year, then that corporation will not
be treated as an S corporation until the taxable year following the year in which the S
election is made.

       Section 1362(b)(5) provides that if no § 1362(a) election is made for any taxable
year, and the Secretary determines that there was reasonable cause for the failure to
timely make such election, then the Secretary may treat such an election as timely
made for such taxable year and § 1362(b)(3) shall not apply.

        Applying the relevant law to the facts submitted and representations made, we
rule that Company's § 1362(a) election will be treated as timely made for its taxable
year that begins on a. However, this ruling is contingent on Company filing Form 2553,
Election by a Small Business Corporation, with an effective date of a, with the
appropriate Service Center within 60 days from the date of this ruling. A copy of this
letter should be attached to the Form 2553.

       Except as specifically set forth above, we express no opinion concerning the
federal tax consequences of the foregoing facts. Specifically, we express no opinion on
whether Company otherwise qualifies as an S corporation.

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

                                                 Sincerely yours,


                                                 WILLIAM P. O’SHEA
                                                 Chief, Branch 3
                                                 Office of the Assistant
                                                  Chief Counsel
                                                 (Passthroughs and Special
                                                  Industries)

Enclosure:
      Copy for section 6110 purposes