PLR 200018023: Late S election recognized from requested effective date

Plain-English summary

A corporation's shareholders intended S corporation treatment from a specified date after incorporation, but the election was not filed on time. The IRS found reasonable cause for the late filing under section 1362(b)(5). It would recognize S status from the requested effective date if the corporation otherwise qualified and filed a completed Form 2553 within 60 days. The IRS returned the form submitted with the ruling request and did not decide whether the corporation met the remaining eligibility requirements.

Ruling snapshot

• Question: Could the late S election take effect on the shareholders' intended date?
• Outcome: Approved, assuming eligibility and timely filing of Form 2553 after the ruling.
• Key authorities: IRC § 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200018023
Washington, DC 20224
Release Date: 5/5/2000
Index Number: 1362.00-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:DOM:P&SI:1 PLR-118831-99
Date:
January 28, 2000

Legend

X
=

State =

D1
=

D2
=

Dear
:

This responds to the letter dated November 15, 1999, submitted on behalf of X, requesting relief under § 1362(b)(5) of the Internal Revenue Code.

FACTS

X was incorporated under State law on D1. X’s shareholders intended that X be a subchapter S corporation, effective D2; 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

2
CC:DOM:P&SI:1 PLR-118831-99

any taxable year after the date prescribed for making such election for such 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.

X did not timely file an election under § 1362(a) to be treated as an S corporation effective D2. 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 D2, we conclude that X will be recognized as an S corporation effective D2. X should file a completed Form 2553 (with a copy of this ruling attached) reflecting its election of subchapter S corporation status as of D2 with the applicable Service Center within 60 days of the date of this letter. The Form 2553 submitted with the ruling request is returned herewith.

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.

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

Sincerely,
Dianna K. Miosi
Chief, Branch 1
Office of the Assistant Chief Counsel
(Passthroughs and Special Industries)

Enclosures (3)
Copy of this letter
Copy for § 6110 purposes
Form 2553