PLR 200015018: Late S election granted for shareholders' intended date

Plain-English summary

A corporation's shareholders intended S corporation treatment from a specified date but did not file the election on time. The IRS found reasonable cause for the delay under section 1362(b)(5). It ruled that the company would be recognized as an S corporation from the intended date if it otherwise qualified. The company had to file Form 2553 with a copy of the ruling within 60 days. The IRS gave no opinion on whether the company met the other eligibility requirements.

Ruling snapshot

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

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Index Number: 1362.00-00 Washington, DC 20224

Person to Contact:

Telephone Number:
Number: 200015018
Release Date: 4/14/2000
Refer Reply To:
CC:DOM:P&SI:1 PLR-118397-99
Date:
Jan 06, 2000

Legend

X
=

State =

D1 =

This responds to the letter dated October 12, 1999, submitted on behalf of X, requesting relief under § 1362(b)(5) of the Internal Revenue Code.

FACTS

X was incorporated under State law. X’s shareholders intended that X be a subchapter S corporation, effective D1; however, an S corporation election under § 1362 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 that corporation will be treated as an S corporation for 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 for making such election for such taxable

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CC:DOM:P&SI:1 PLR-118397-99

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.

X did not timely file an election under § 1362(a) to be treated as an S corporation effective D1. X, however, has 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 assuming that X otherwise qualifies as a subchapter S corporation as of D1, we conclude that X will be recognized as an S corporation effective as of D1. X should file a completed Form 2553 (with a copy of this ruling attached) reflecting its election of subchapter S corporation status as of D1 with the applicable Service Center within 60 days of 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 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.

In accordance with the Power of Attorney on file with this office, this ruling is being sent to the taxpayer’s authorized representative and a copy of the ruling is being sent to the taxpayer.

Sincerely,
David R. Haglund
Senior Technician Reviewer, Branch 1
Office of the Assistant Chief Counsel
(Passthroughs and Special Industries)

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