PLR 200037044: Late S corporation election accepted for intended year

Plain-English summary

A corporation's shareholders intended it to be taxed as an S corporation from the start of a specified tax year, but its election was filed late. The IRS found reasonable cause for the delay and granted relief under section 1362(b)(5). If the corporation otherwise qualifies for S status, the election will be effective for the intended year. The corporation must file a completed Form 2553 with a copy of the ruling within 60 days of the letter. The IRS did not decide whether the corporation meets the other eligibility requirements.

Ruling snapshot

• Question: Can the late S corporation election take effect for the intended tax year?
• Outcome: Approved, subject to the corporation otherwise qualifying for S status.
• Key authorities: IRC § 1362(a), (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:

Telephone Number:
Number: 200037044
Release Date: 9/15/2000
Refer Reply To:
CC:DOM:P&SI:1 PLR-107959-00
Date:
June 20, 2000

Legend

X
=

State =

D1
=

D2
=

This responds to the letter dated March 3, 2000, submitted on behalf of X, requesting relief under § 1362(b)(5) of the Internal Revenue Code.

FACTS

X was incorporated under State law on D1. X’s shareholders intended that X be a subchapter S corporation, effective for its taxable year beginning D2; however, an S corporation election under § 1362 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 that corporation will be treated as an S corporation for 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

2
CC:DOM:P&SI:1 PLR-107959-00

any taxable year after the date prescribed for making such election for such 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.

X did not timely file an election under § 1362(a) to be treated as an S corporation for its taxable year beginning D2. X, however, has 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 assuming that X otherwise qualifies as a subchapter S corporation as of D2, we conclude that X will be recognized as an S corporation effective as of D2. X should file a completed Form 2553 (with a copy of this ruling attached) reflecting its election of subchapter S corporation status as of D2 with the applicable Service Center within 60 days of the date of this letter.

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 otherwise satisfies the S corporation eligibility requirements.

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.

In accordance with the Power of Attorney on file with this office, a copy of the ruling is being sent to the taxpayer’s authorized representative.

Sincerely,
/s/Christopher T. Kelley
Acting Assistant to the Chief, Branch 1
Office of the Assistant Chief Counsel
(Passthroughs and Special Industries)
Enclosures (2)
Copy of this letter
Copy for § 6110 purposes