PLR 200003031: Late S election treated as timely if filed within 60 days

Plain-English summary

A corporation intended to elect S corporation status from the taxable year beginning on its incorporation date. Its representatives failed to file Form 2553 on time. The IRS found reasonable cause for the delay and granted relief under § 1362(b)(5). If the corporation filed a completed Form 2553 within 60 days of the letter, with the specified effective date and a copy of the ruling, the election would be treated as timely. The IRS expressly declined to determine whether the corporation otherwise qualified as an S corporation.

Ruling snapshot

• Question: Could the late S election be treated as timely for the corporation's first taxable year?
• Outcome: Approved, if the corporation filed Form 2553 within 60 days as directed.
• 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



                                                 Person to Contact:
Number: 200003031                                Telephone Number:
Release Date: 1/21/2000
                                                 Refer Reply To:
                                                 CC:DOM:P&SI:3 PLR-112975-99
                                                 Date:
                                                 October 25, 1999


LEGEND:

X                      =

A                      =

D1                     =

      This letter responds to a letter, dated July 22, 1999, written on behalf of X,
requesting a ruling under § 1362(b)(5) of the Internal Revenue Code that X's S
corporation status will be effective as of the taxable year beginning D1.

                                          FACTS

        According to the information submitted, X was incorporated on D1 and it was
decided that X would be an S corporation. A, the sole shareholder of X, hired
representatives to file X's Form 2553, Election by a Small Business Corporation, with an
effective date of D1. The representatives, however, failed to timely file X's Form 2553.

       X requests a ruling that it will be recognized as an S corporation effective for the
taxable year beginning D1 under § 1362(b)(5).

                                  LAW AND ANALYSIS

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

        Section 1362(b) provides when an S election will be 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 beginning the year in which the election
is made. 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 after the year in which the S election is made.

       Section 1362(b)(5) provides that if: (1) an election under § 1362(a) is made for

PLR-112975-99                                 2


any taxable year after the date prescribed by § 1362 for making the election or no
§ 1362(a) election is made for any taxable year, and (2) the Secretary determines that
there was reasonable cause for the failure to timely make the election, then the
Secretary may treat the election as timely made for such taxable year.

                                     CONCLUSIONS

        Based solely on the facts submitted and representations made, we conclude that
X has established reasonable cause for not making a timely election and is eligible for
relief under § 1362(b)(5). Accordingly, if X makes an election to be an S corporation by
filing with the appropriate Service Center a completed Form 2553, containing an
effective date of D1 for the election, within 60 days following the date of this letter, then
such election will be treated as timely made. A copy of this letter should be attached to
the Form 2553 filed with the Service Center. A copy is enclosed for that purpose.

       Except as specifically set forth above, no opinion is expressed concerning the
federal tax consequences of the facts described above under any other provision of the
Code. Specifically, no opinion is expressed concerning whether X is an S corporation
for federal tax purposes.

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

        Under a power of attorney filed with this office, we are sending a copy of this
letter to your authorized representative.

                                           Sincerely yours,

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

Enclosures (2)
      Copy of this letter
      Copy for § 6110 purposes