PLR 200025041: Missed S election may take effect from incorporation

Plain-English summary

A corporation decided when it was incorporated that it would elect S corporation status, but Form 2553 was not filed on time. The IRS found reasonable cause for the missed deadline. It ruled that the election would be treated as timely from the corporation's first tax year if a completed Form 2553 with that effective date was filed within 60 days of the ruling letter. The IRS did not decide whether the corporation otherwise qualifies for S corporation treatment.

Ruling snapshot

• Question: May a late S election take effect from the corporation's incorporation date?
• Outcome: Approved, conditioned on 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

Person to Contact:
Number: 200025041
Telephone Number:
Release Date: 6/23/2000
Refer Reply To:
CC:DOM:P&SI:3 PLR-104495-00
Date:
March 27, 2000

LEGEND:

X
=

D
=

Dear

This letter responds to your letter, dated January 4, 2000, 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 D.

FACTS

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

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
PLR-104495-00
2

§ 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 D 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.

Pursuant to a power of attorney on file with this office, we are sending a copy of this letter to X.

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