PLR 200029043: Corporation may reelect S status before five years pass

Plain-English summary

A corporation had revoked its S corporation election and wanted to elect S status again before the usual five-year waiting period ended. It represented that 77 percent of its shares were then owned by people who had not held shares when the prior election was revoked. The IRS granted permission under section 1362(g) to reelect S status early. The company still had to file a valid, timely Form 2553, and the IRS did not decide whether it otherwise qualified as an S corporation.

Ruling snapshot

• Question: May the company elect S status again before the five-year waiting period expires?
• Outcome: Approved, subject to a valid timely election.
• Key authorities: IRC § 1362(g); Treas. Reg. § 1.1362-5(a).

Full text (IRS public release)

Internal Revenue Service                         Department of the Treasury

Index Number: 1362-01-02                         Washington, DC 20224



                                                 Person to Contact:
Number: 200029043                                Telephone Number:
Release Date: 7/21/2000
                                                 Refer Reply To:
                                                 PLR-102616-00 / CC:DOM:P&SI:3
                                                 Date:
                                                 April 24, 2000


LEGEND

Company       =

d1            =

d2            =

d3            =

d4            =

State         =

SH            =

Dear

       This letter responds to your letter dated January 17, 2000 on behalf of Company,
requesting permission for Company to reelect S corporation status under § 1362(g) of
the Internal Revenue Code.

FACTS

       According to the information submitted, Company was incorporated on d1 under
the laws of State, and elected under § 1362(a) to be treated as an S corporation on d2.
Company revoked its S corporation election effective d3. At the time of the revocation,
Company's sole Shareholder was SH.

        Company desires to reelect S corporation status effective d4, a date that is prior
to the five year waiting period mandated by § 1362(g). Company represents that as of
d4, 77% of Company's stock was owned by individuals who were not shareholders of
Company on d3, the date of the revocation.

LAW AND ANALYSIS

PLR-102616-00                              2


         Section 1362(g) provides that, if a small business corporation has made an
election under § 1362(a) and if such election has been terminated under § 1362(d), such
corporation (and any successor corporation) shall not be eligible to make an election
under § 1362(a) for any taxable year before its fifth taxable year which begins after the
first taxable year for which such termination is effective.

       Section 1.1362-5(a) of the Income Tax Regulations provides, in part, that the
Commissioner may permit a corporation to make a new election before the five-year
period expires. The corporation has the burden of establishing that under the relevant
facts and circumstances, the Commissioner should consent to a new election. The fact
that more than fifty percent of the stock in the corporation is owned by persons who did
not own any stock in the corporation on the date of the termination tends to establish
that consent should be granted.

CONCLUSION

       Based solely on the facts submitted and the representations made, we grant
Company permission to reelect S corporation status effective d4. As discussed with
your authorized representative, Company must, pursuant to § 1362(a) and the
regulations thereunder, timely file with the applicable service center a valid Form 2553,
Election by a Small Business Corporation. Additionally, a copy of this letter should be
attached to Company's federal income tax return for the taxable year for which the S
corporation election is accepted as timely filed.

       Except as specifically set forth above, no opinion is expressed concerning the
federal tax consequences under any other provisions of the Code. Specifically, we
express no opinion regarding whether Company is eligible to be an S corporation.

       Pursuant to a power of attorney on file with this office, a copy of this letter is being
sent to your authorized representative.

       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.

                                           Sincerely Yours,
                                           Joni Larson
                                           Acting Assistant to the Chief, Branch 3
                                           Office of the Assistant Chief Counsel
                                           (Passthroughs and Special Industries)
Enclosures (2)
      Copy of this letter
      Copy for § 6110 purposes