PLR 200004012: Corporation receives relief for a late S election

Plain-English summary

A corporation's shareholders intended S corporation status from the start of a tax year but missed the election deadline. The IRS found reasonable cause and granted late election relief under § 1362(b)(5), recognizing S status from the requested date if the corporation otherwise qualified. The ruling also assumed that shareholders would make any necessary adjustments to their income tax returns. The corporation was instructed to file Form 2553 with a copy of the ruling within 60 days. The IRS did not decide whether the corporation actually met the S corporation eligibility requirements.

Ruling snapshot

• Question: Can the late S election take effect from the start of the requested tax year?
• Outcome: Approved, subject to eligibility, shareholder return adjustments, and filing Form 2553 within 60 days.
• Key authorities: IRC § 1362(a), (b)(5).

Full text (IRS public release)

Internal Revenue Service                        Department of the Treasury

Index Number:       1362.01-03                  Washington, DC 20224



Number: 200004012                               Person to Contact:
Release Date: 1/28/2000                         Telephone Number:

                                                Refer Reply To:
                                                CC:DOM:P&SI:Br.1-PLR-112785-99
                                                Date:
                                                 October 22, 1999




Legend

X            =


D1           =

State        =

      This responds to your representative’s letter dated July 19, 1999, and
subsequent correspondence, written on behalf of X, requesting a ruling that X's S
corporation status will be effective as of D1.

                                         FACTS

       X incorporated under State law. X's shareholders intended that X be a
subchapter S corporation for its tax year beginning D1; however, the S corporation
election under § 1362 of the Internal Revenue Code was not filed timely.

        X requests a ruling that it will be recognized as a subchapter S corporation
effective D1 pursuant to § 1362(b)(5).

                                 LAW AND ANALYSIS

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

        Section 1362(b) provides the rule on when a subchapter S election will be
effective. If a subchapter 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 a subchapter S
corporation for the year in which the election is made. If a subchapter 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 a subchapter S corporation until the taxable year after
the year in which the subchapter S election is made.

        Section 1362(b)(5) provides that if: (1) 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 such 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 taxable year.

        X's subchapter S corporation election was not filed timely for the election to be
effective as of its taxable year beginning on D1. Nevertheless, X has established
reasonable cause for not making a timely election and is entitled to relief under
§ 1362(b)(5).

                                     CONCLUSIONS

        Based solely on the facts submitted and representations made, and assuming
that X otherwise qualifies as a subchapter S corporation as of D1, and X's shareholders
make any adjustments to their federal income tax returns necessary to comply with this
ruling, we conclude that X will be recognized as a subchapter S corporation effective for
the period beginning on D1. Please file a completed Form 2553 (with a copy of this
ruling attached) reflecting X’s election of subchapter S corporation status as of D1, with
the applicable service center within 60 days from the date of this letter.

       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 otherwise satisfies
the subchapter S corporation eligibility requirements.

       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.

       Pursuant to a power of attorney on file with this office, a copy of this letter is
being sent to X’s authorized representative.
                                                Sincerely,
                                                 Signed/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