PLR 200037031: Late S corporation election effective from start of business

Plain-English summary

A corporation was formed before it began doing business. Its shareholders intended S corporation status to begin when business started, but the election was filed late. The IRS found reasonable cause for the late filing and granted relief under section 1362(b)(5). It concluded that the corporation would be recognized as an S corporation from the intended date if it otherwise qualified and submitted a completed Form 2553 with the letter within 60 days.

Ruling snapshot

• Question: Could the late S corporation election take effect when the corporation began doing business?
• Outcome: Approved: relief granted subject to qualification and filing conditions.
• Key authorities: IRC § 1362(a), (b), and (b)(5)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Index Number: 1362.00-00 Washington, DC 20224
Number: 200037031
Release Date: 9/15/2000
Person to Contact:

Telephone Number:

Refer Reply To:
CC:DOM:P&SI:Br.1-PLR-111269-00
Date:
June 13, 2000

Legend:

X =

D1 =

D2 =

State =
:
This letter responds to the ruling request dated May 25, 2000, that was submitted by your representative and which requests relief under § 1362(b)(5) of the Internal Revenue Code.

FACTS

X was incorporated on D1 under the laws of State but did not begin doing business until D2. The shareholders of X intended for X to be treated as an S corporation for federal income tax purposes effective on D2, 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.

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 2 PLR-111269-00

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 D2. 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 D2. 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 as to the federal tax consequences of the transaction described above under any other provision of the Internal Revenue Code.

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

Pursuant to the power of attorney on file with this office, the original of this letter is being sent to the taxpayer and a copy will be sent to the taxpayer’s representative.

Sincerely yours,
David R. Haglund
Senior Technician Reviewer, Branch 1
Office of the Assistant Chief Counsel
(Passthroughs & Special Industries)

Enclosures: 2
Copy of this letter
Copy for §6110 purposes