PLR 200004019: Corporation receives relief for a late S election

Plain-English summary

A corporation's two shareholders wanted S corporation status from the date of incorporation, but the corporation did not file the election on time. The IRS found reasonable cause for the missed deadline and granted relief under § 1362(b)(5). The corporation would be treated as an S corporation from that date if it otherwise qualified and submitted a completed Form 2553 with a copy of the letter within 60 days. The IRS expressly gave no opinion on whether the corporation actually met the S corporation requirements.

Ruling snapshot

• Question: Can the corporation's late S election take effect from its incorporation date?
• Outcome: Approved, subject to S corporation eligibility and filing Form 2553 within 60 days.
• Key authorities: IRC § 1362(a), (b)(3), (b)(5).

Full text (IRS public release)

Internal Revenue Service                         Department of the Treasury

Index Number:        1362.01-03                  Washington, DC 20224



Number: 200004019                                Person to Contact:
Release Date: 1/28/2000                          Telephone Number:

                                                 Refer Reply To:
                                                 CC:DOM:P&SI:1-PLR-115731-99
                                                 Date:
                                                 October 27, 1999




Legend

X             =


Date 1        =




      This responds to a letter dated September 10, 1999, submitted on behalf of X,
requesting relief under § 1362(b)(5) of the Internal Revenue Code.

Facts

      X was incorporated on Date 1. The two shareholders of X desired that X elect S
corporation treatment for X, effective on Date 1, but the election to be treated as an S
corporation was not timely filed. Accordingly, X requests a ruling that it will be treated
as an S corporation effective Date 1.

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.
Section 1362(b)(2) provides in relevant part that 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. Under
§ 1362(b)(3), however, 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 filed.

PLR-115731-99

        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 § 1362(b)(3) shall not apply.

        X did not file an election to be treated as an S corporation under § 1362(a). X
has, however, established reasonable cause for not making a timely S election and is
entitled to relief under § 1362(b)(5).

Conclusion

       Based solely on the facts submitted and the representations made, and provided
that X otherwise qualifies as an S corporation, we conclude that X will be treated as an
S corporation effective Date 1. 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 specifically set forth above, no opinion is expressed or implied as to
the federal income tax consequences of the transaction described above under any
other provision of the Code. Specifically, no opinion is expressed concerning whether X
is, in fact, an S corporation for federal tax purposes.

      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.


                                         Sincerely,


                                         Signed/Dianna K. Miosi
                                         Dianna K. Miosi
                                         Chief, Branch 1
                                         Office of the Assistant Chief Counsel
                                         (Passthroughs and Special Industries)
Enclosures (2)
 Copy of this letter
 Copy for § 6110 purposes