PLR 200031037: Late S corporation election accepted for intended effective date

Plain-English summary

A corporation intended to elect S corporation status effective on a redacted date, but it missed the filing deadline. The IRS found reasonable cause for the late election and granted relief under section 1362(b)(5). It said the corporation would be recognized as an S corporation from its intended effective date, provided it otherwise qualified for that status. The corporation was directed to submit a properly completed Form 2553 with a copy of the letter within 60 days. The ruling addressed the missed deadline; it did not determine whether the corporation otherwise met all S corporation requirements.

Ruling snapshot

• Question: May the corporation's late S election take effect on its intended date?
• Outcome: Approved, provided the corporation otherwise qualifies and files 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: 200031037                                Person to Contact:
Release Date: 8/4/2000                           Telephone Number:

                                                 Refer Reply To:
                                                 CC:DOM:P&SI:1-PLR-100517-00
                                                 Date:
                                                   April 28, 2000




       Legend:

       X      =


       D1     =

       State =



      This responds to your letter dated December 26, 1999, submitted on behalf of X
requesting relief under § 1362(b)(5) of the Internal Revenue Code.

                                          FACTS

       X was incorporated under State law. X intended to be treated as an S corporation
for federal income tax purposes effective on D1, but the S election 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 the corporation will be treated as an S corporation for the year in which the election
is made. If the election is made after the first two and one-half months of a corporation’s
taxable year, then the corporation will not be treated as an S corporation until the taxable
year after the year in which the S election is made.
PLR-100517-00                                 2


       Section 1362(b)(5) provides that if no election is made pursuant to § 1362(a), or, if
made, the election is made after the date prescribed for making such an election, and the
Secretary determines there was reasonable cause for the failure to timely make the
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 tax year.

        X did not file a timely election to be treated as an S corporation under § 1362(a)
effective on D1. X has, however, 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 provided that
X otherwise qualifies as a subchapter S corporation, we conclude that X will be recognized
as an S corporation effective D1. 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 expressly provided herein, no opinion is expressed or implied concerning
the tax consequences of any aspect of any transaction or item discussed or referenced in
this letter.

      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.


                                               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