PLR 200031027: S election accepted from corporation's incorporation date

Plain-English summary

A corporation's sole shareholder intended S corporation treatment from the date of incorporation, but the election was not filed on time. The IRS found reasonable cause for the delay and granted relief under section 1362(b)(5). It said the corporation would be treated as an S corporation from the redacted incorporation date, provided it otherwise qualified. The corporation was directed to file a completed Form 2553 with the ruling attached within 60 days. The letter expressly did not determine whether the corporation actually met the other S corporation requirements.

Ruling snapshot

• Question: May a missed S election be treated as timely from the corporation's incorporation date?
• Outcome: Approved, contingent on otherwise qualifying and submitting Form 2553 as directed.
• Key authorities: IRC § 1362(a), (b), and (b)(5).

Full text (IRS public release)

Internal Revenue Service                         Department of the Treasury

Index Number:        1362.01-03                  Washington, DC 20224



Number: 200031027                                Person to Contact:
Release Date: 8/4/2000                           Telephone Number:

                                                 Refer Reply To:
                                                 CC:DOM:P&SI:1-PLR-106004-00
                                                 Date:
                                                    April 28, 2000




Legend

X             =


Date 1        =




      This responds to a letter dated March 1, 2000, submitted on behalf of X,
requesting relief under § 1362(b)(5) of the Internal Revenue Code.

Facts

      X was incorporated on Date 1. The sole shareholder of X desired that X elect S
corporation treatment for X, effective on Date 1, but the election to be treated as an S
corporation was not timely filed. Accordingly, X requests a ruling that it will be treated
as an S corporation effective Date 1.

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.
Section 1362(b)(2) provides in relevant part that if an S election is made within the first
two and one-half months of a corporation's taxable year, then the corporation will be
treated as an S corporation for the year in which the election is made. Under
§ 1362(b)(3), however, 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
                                              2
PLR-106004-00

corporation until the taxable year after the year in which the S election is filed.

        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 § 1362(b)(3) shall not apply.

        X did not file an election to be treated as an S corporation under § 1362(a). X
has, however, established reasonable cause for not making a timely S election and is
entitled to relief under § 1362(b)(5).

Conclusion

       Based solely on the facts submitted and the representations made, and provided
that X otherwise qualifies as an S corporation, we conclude that X will be treated as an
S corporation effective Date 1. Within 60 days from the date of this letter, X should
submit a properly completed Form 2553, with a copy of this letter attached, to the
relevant service center.

         Except as specifically set forth above, no opinion is expressed or implied as to
the federal income tax consequences of the transaction described above under any
other provision of the Code. Specifically, no opinion is expressed concerning whether X
is, in fact, an S corporation for federal tax purposes.

      This ruling is directed only to the taxpayer(s) requesting it. Section 6110(k)(3) of
the Code provides that it may not be used or cited as precedent.

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

                                           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