PLR 200019032: Late S corporation election accepted from incorporation

Plain-English summary

A corporation's shareholders intended S corporation status from its incorporation date, but the election was filed late. The IRS found reasonable cause for the missed deadline and granted relief under § 1362(b)(5). It recognized S status from the start of the corporation's tax year, assuming the corporation otherwise qualified and its shareholders made any necessary adjustments to their federal returns. The corporation was directed to file Form 2553 with a copy of the ruling within 60 days. The IRS expressly did not decide whether the corporation met the other S corporation eligibility requirements.

Ruling snapshot

• Question: Could the corporation's late S election take effect from its incorporation date?
• Outcome: approved
• Key authorities: IRC § 1362(a) and (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Index Number: 1362.01-03 Washington, DC 20224

Number: 200019032
Person to Contact:
Release Date: 5/12/2000
Telephone Number:

Refer Reply To:
CC:DOM:P&SI:Br.1-PLR-100498-00
Date:
Feb 15, 2000

Legend

X
=

D1 =

State =

This responds to your representative’s letter dated November 11, 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 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.
2
PLR-100498-00

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.

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’s authorized representative.
Sincerely,
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