PLR 200038038: Late S corporation election accepted if signed form is filed

Plain-English summary

A corporation's original shareholders intended S corporation treatment from its formation date, but the election was not filed on time. The IRS found reasonable cause for the delay and granted relief under section 1362(b)(5). The corporation would be treated as an S corporation from the requested date if it otherwise qualified and filed a properly signed Form 2553 within 60 days of the letter. The form had to be executed by the original shareholders and the current sole shareholder. The IRS did not decide whether the corporation otherwise met the S corporation requirements.

Ruling snapshot

• Question: Could a late S election take effect on the corporation's formation date?
• Outcome: Approved, conditioned on a timely, properly signed Form 2553 and otherwise qualifying for S status.
• Key authorities: IRC § 1362(a), (b)(2), (b)(3), and (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Index Number: 1362.01-03
Washington, DC 20224

Number: 200038038
Person to Contact:
Release Date: 9/22/2000
Telephone Number:

Refer Reply To:
CC:DOM:P&SI:1-PLR-111679-00
Date:
June 27, 2000

Legend

X
=

A
=

B
=

C
=

Date1 =
Date2 =
Date3 =

State =

Pursuant to a power of attorney on file in this office, this responds to a ruling request dated June 2, 2000, submitted on behalf of X , which requests relief under §1362(b)(5) of the Internal Revenue Code.

FACTS

X was incorporated on Date1 under the laws of State. At that time, A and B were the shareholders of X. On Date2, B transferred all of B’s shares in X to C. On Date3, X redeemed all of A’s shares of X. At this time, C is the only shareholder of X. A and B intended that X be treated as an S corporation effective Date1, but an 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.

2
PLR- 111679-00

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 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 make such election timely, 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 a timely election to be treated as an S corporation under § 1362(a) effective on Date1. X has, however, established reasonable cause for not making a timely S election and is entitied 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 Date1 if X submits a Form 2553 properly executed by A, B, and C to the relevant service center within 60 days from the date of this letter. X should also submit a copy of this letter with the Form 2553.

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, we express no opinion as to whether X is otherwise qualified to be an S corporation.

This ruling is directed only to the taxpayer on whose behalf it was requested.
Section 6110(k)(3) provides that it may not be cited or used as precedent.

Sincerely yours,
CHRISTOPHER KELLEY
Acting Assistant to the Branch Chief, Branch 1 Office of the Assistant Chief Counsel
(Passthroughs and Special Industries)
Enclosures (2)
Copy of this letter
Copy for § 6110 purposes