PLR 200004027: Late S election can be treated as timely if Form 2553 is filed within 60 days

Plain-English summary

A newly incorporated company intended to elect S corporation status but did not file Form 2553 on time. The IRS found reasonable cause for the delay. It ruled that an election would be treated as timely if the company filed a completed Form 2553 with the specified effective date within 60 days of the letter and attached a copy of the ruling. The letter gives no opinion on whether the company actually qualifies as an S corporation.

Ruling snapshot

• Question: Can the company's late S election be treated as timely under § 1362(b)(5)?
• Outcome: Approved, if the required Form 2553 is filed within 60 days with the stated effective date and a copy of the letter.
• 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: 200004027
                                                 Telephone Number:
Release Date: 1/28/2000
                                                 Refer Reply To:
                                                 CC:DOM:P&SI:3 PLR-115845-99
                                                 Date:
                                                 November 1, 1999

LEGEND:

X               =

D               =

      This letter responds to a letter, dated August 17, 1999, written on behalf of X,
requesting a ruling under § 1362(b)(5) of the Internal Revenue Code that X's S
corporation election will be effective as of the taxable year beginning D.

                                          FACTS

      According to the information submitted, X was incorporated on D and it was
decided that X would be an S corporation. The Form 2553, Election by a Small
Business Corporation, however, was not timely filed.

       X requests a ruling that it will be recognized as an S corporation effective for the
taxable year beginning D 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
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

        After applying the law to the facts submitted and the 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 D2 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)
provides that it may not be used or cited as precedent.

        Pursuant to a power of attorney on file 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