PLR 200041011: Late S election granted, with conflicting dates in letter

Plain-English summary

A corporation's new owner intended S corporation treatment, but the election was not filed on time. The IRS found reasonable cause for the delay under section 1362(b)(5) and granted relief if the corporation otherwise qualified and filed Form 2553 within 60 days. The letter gives different dates: its facts say the owner intended the election to take effect on D3, while its conclusion grants treatment effective on D2. The IRS did not determine whether the corporation was actually eligible for S status.

Ruling snapshot

• Question: Could the late S election receive reasonable cause relief?
• Outcome: Approved conditionally; the letter's facts and conclusion give different effective dates.
• Key authorities: IRC § 1362(a), (b), (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Index Number: 1362.01-03 Washington, DC 20224

Number: 200041011
Person to Contact:
Release Date: 10/13/2000
Telephone Number:

Refer Reply To:
CC:PSI:B01-PLR-109940-00
Date:
July 11, 2000

Legend

X =

A =

D1 =

D2 =

D3 =

This responds to your letter dated May 8, 2000, submitted on behalf of X, requesting relief under § 1362(b)(5) of the Internal Revenue Code.

Facts

X was incorporated on D1. On D2 all of the shares of X were purchased by A. A intended X to be treated as an S corporation for federal tax purposes effective on D3, 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 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 (1) if no election is made pursuant to section 1362(a), or if the election is made after the date prescribed for making such an election,

CC:PSI:B01-PLR-109940-00
2

and (2) the Secretary determines that 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 year.

X did not timely 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 on 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 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. 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,
Dianna K. Miosi
Chief, Branch 1
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures (2)
Copy of this letter
Copy for § 6110 purposes