PLR 200015022: Late S election may take effect for the requested tax year

Plain-English summary

A corporation intended to elect S corporation treatment beginning in a specified tax year but did not file Form 2553 on time. The IRS found reasonable cause for the delay and granted relief under section 1362(b)(5). If the corporation files a completed Form 2553 within 60 days of the ruling, with the requested effective date and a copy of the ruling, the election will be treated as timely. The IRS did not determine whether the corporation otherwise qualifies as an S corporation.

Ruling snapshot

• Question: Can the corporation's late S election take effect for its requested tax year?
• Outcome: Approved, if it files 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

Person to Contact:
Number: 200015022
Telephone Number:
Release Date: 4/14/2000
Refer Reply To:
CC:DOM:P&SI:3 PLR-119397-99
Date:
January 10, 2000

LEGEND:

X
=

D1
=

D2
=

This letter responds to your letter, dated November 5, 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 D2.

FACTS

According to the information submitted, X was incorporated on D1 and it was decided that X would be an S corporation effective D2. 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 D2 under § 1362(b)(5).

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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.

PLR-119397-99
3

Under 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