PLR 200043019: Corporation receives late S election relief

Plain-English summary

A corporation's original shareholders intended S corporation treatment from its incorporation date, but the company did not file its election on time. The IRS found reasonable cause for the missed deadline under section 1362(b)(5). It would treat the company as an S corporation from the requested date if the company otherwise qualified and filed Form 2553 within 60 days. The form had to be signed by all ten shareholders named in the letter, including those who joined after incorporation. The IRS did not determine whether the company otherwise met the S corporation requirements.

Ruling snapshot

• Question: May the late S election take effect from the corporation's incorporation date?
• Outcome: Approved, subject to qualification and a timely Form 2553 signed by all named shareholders.
• Key authorities: IRC § 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Index Number: 1362.01-03
Washington, DC 20224

Number: 200043019
Person to Contact:
Release Date: 10/27/2000
Telephone Number:

Refer Reply To:
CC:DOM:P&SI:1-PLR-111438-00
Date:
July 18, 2000

Legend

X
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A
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B
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C
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D
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F
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Date1 =

State =
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This responds to a ruling request dated May 31, 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, B, D, E, I, and J were the shareholders of X and intended that X be treated as an S corporation effective Date1, but an S election was not timely filed. Currently, A, B, C, D, E, F, G, H, I, and J are the shareholders of X.

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- 111438-00

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, C, D, E, F, G, H, I, and J 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. As directed in a power of attorney on file in this office, a copy of this letter ruling is being sent to your authorized representative.

Sincerely yours,
DAVID HAGLUND
Senior Technician Reviewer, Branch 1
Associate Chief Counsel
(Passthroughs and Special Industries)
Enclosures (2)
Copy of this letter
Copy for § 6110 purposes