PLR 200003032: Late S election recognized from incorporation date

Plain-English summary

A corporation intended to be treated as an S corporation from its incorporation date but did not file its election on time. The IRS found reasonable cause for the delay under § 1362(b)(5). It concluded that the corporation would be recognized as an S corporation effective on that date, provided it otherwise qualified. The letter directed the corporation to submit a completed Form 2553 with the ruling attached within 60 days. It gave no opinion on other tax consequences.

Ruling snapshot

• Question: Could the corporation's late S election take effect on its incorporation date?
• Outcome: Approved, provided it otherwise qualified as an S corporation. The IRS separately directed it to submit 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: 200003032                                Person to Contact:
Release Date: 1/21/2000                          Telephone Number:

                                                 Refer Reply To:
                                                 CC:DOM:P&SI:1-PLR-114791-99
                                                 Date:
                                                 October 25, 1999




       Legend:

       X      =


       D1     =



       This responds to your letter dated June 22, 1999, together with subsequent
correspondence, submitted on behalf of X requesting relief under § 1362(b)(5) of the
Internal Revenue Code.

                                          FACTS

      X was incorporated on D1. X intended to be treated as an S corporation for federal
income tax purposes effective on D1, but the S election was not timely filed.

                                  LAW AND ANALYSIS

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

       Section 1362(b) provides the rule on 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 the corporation will be treated as an S corporation for the year in which the election
is made. If the election is made after the first two and one-half months of a corporation’s
taxable year, then the 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 no election is made pursuant to § 1362(a), or, if
made, the election is made after the date prescribed for making such an election, and the


PLR-114791-99                               2


Secretary determines there was reasonable cause for the failure to timely make the
election, then the Secretary may treat such an election as timely made for such taxable
year and effective as of the first day of that tax year.

        X did not file a timely election to be treated as an S corporation under § 1362(a)
effective on D1. X has, however, established reasonable cause for not making a timely
election and is entitled to relief under § 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 requesting it. Section 6110(k)(3) of the
Code provides that it may not be used or cited as precedent.

                                                 Sincerely,


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

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