PLR 200015035: Late S election effective from incorporation if conditions are met

Plain-English summary

A corporation's shareholders intended S corporation treatment from its incorporation date, but the election was filed late. The IRS found reasonable cause for the delay and granted relief under section 1362(b)(5). The corporation's S status would be effective from the start of that tax year if it otherwise qualified and its shareholders made any needed return adjustments. The company also had to file a completed Form 2553 with the ruling attached within 60 days of the letter. The IRS did not decide whether the company satisfied the other S corporation eligibility requirements.

Ruling snapshot

• Question: May the late S corporation election take effect from the incorporation date?
• Outcome: Approved, subject to eligibility, shareholder return adjustments, and a timely Form 2553 filing.
• 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: 200015035
Person to Contact:
Release Date: 4/14/2000
Telephone Number:

Refer Reply To:
CC:DOM:P&SI:Br.1-PLR-100062-00
Date:
January 18, 2000

Legend

X
=

D1
=

State =

This responds to your letter dated December 13, 1999, and subsequent correspondence, written on behalf of X, requesting a ruling that X’s S corporation status will be effective as of D1.

FACTS

X incorporated under State law on D1. X’s shareholders intended that X be a subchapter S corporation for its tax year beginning D1; however, the S corporation election under § 1362 of the Internal Revenue Code was not filed timely.

X requests a ruling that it will be recognized as a subchapter S corporation effective D1 pursuant to § 1362(b)(5).

LAW AND ANALYSIS

Section 1362(a) provides that a small business corporation may elect to be a subchapter S corporation.

Section 1362(b) provides the rule on when a subchapter S election will be

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effective. If a subchapter 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 a subchapter S corporation for the year in which the election is made. If a subchapter 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 a subchapter S corporation until the taxable year after the year in which the subchapter S election is made.

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 effective as of the first day of that taxable year.

X's subchapter S corporation election was not filed timely for the election to be effective as of its taxable year beginning on D1. Nevertheless, X has established reasonable cause for not making a timely election and is entitled to relief under § 1362(b)(5).

CONCLUSIONS

Based solely on the facts submitted and representations made, and assuming that X otherwise qualifies as a subchapter S corporation as of D1, and X's shareholders make any adjustments to their federal income tax returns necessary to comply with this ruling, we conclude that X will be recognized as a subchapter S corporation effective for the period beginning on D1. Please file a completed Form 2553 (with a copy of this ruling attached) reflecting X’s election of subchapter S corporation status as of D1, with the applicable service center within 60 days from 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 subchapter S corporation eligibility requirements.

The rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination.

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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, a copy of this letter is being sent to X.

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