PLR 200015019: Reasonable cause permits late S election

Plain-English summary

A corporation intended to elect S corporation treatment from a specified date but missed the filing deadline. The IRS found reasonable cause for the late election and granted relief under section 1362(b)(5). It said the corporation would be recognized as an S corporation from that date if it otherwise qualified. The corporation had to submit a completed Form 2553 with a copy of the ruling within 60 days. The ruling expressed no opinion on other tax consequences.

Ruling snapshot

• Question: May the late S election take effect on the corporation's intended date?
• Outcome: Approved, subject to S corporation eligibility and filing 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: 200015019
Person to Contact:
Release Date: 4/14/2000
Telephone Number:

Refer Reply To:
CC:DOM:P&SI:1-PLR-119713-99
Date:
Jan 05, 2000

Legend:

X =

D1 =

State =

This is in reply to a letter dated December 7, 1999, together with subsequent correspondence, submitted on behalf of X, requesting relief under section 1362(b)(5) of the Internal Revenue Code.

FACTS

X was incorporated under State law. 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

PLR-119713-99
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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 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(s) requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representative.

Sincerely,

Signed/David R. Haglund

David R. Haglund
Senior Technical Reviewer, Branch1
Office of the Assistant Chief Counsel
(Passthroughs and Special Industries)
Enclosures (2) copy of this letter copy for § 6110 purposes