PLR 200047029: Corporation may file late S election after showing reasonable cause

Plain-English summary

A corporation intended to elect S corporation status for a tax year, but its Form 2553 was filed late. The IRS found reasonable cause for the delay and allowed the election to take effect at the start of the requested year if the corporation filed a completed form within 60 days of the letter. The ruling also required shareholders to make any necessary adjustments to their federal returns. It assumed the corporation otherwise qualified for S status and expressly did not decide whether it was an S corporation.

Ruling snapshot

• Question: May the corporation make its S election effective for the requested year despite missing the filing deadline?
• Outcome: Approved, subject to filing Form 2553 within 60 days and the stated qualifications.
• Key authorities: IRC § 1362(a), (b), (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200047029
Washington, DC 20224
Release Date: 11/24/2000
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:DOM:P&SI:3 PLR-110910-00
Date:
August 24, 2000

LEGEND:

X
=
D1
=
D2
=

Dear

This letter responds to a letter, dated May 18, 2000, written on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code that X's S corporation election will be effective as of the taxable year beginning D2.

FACTS

According to the information submitted, X was incorporated on D1. X’s shareholders decided that X would be an S corporation as of the tax year beginning D2. The Form 2553, Election by a Small Business Corporation, however, was not timely filed.

X requests a ruling that it will be recognized as an S corporation effective for the taxable year beginning D2 under § 1362(b)(5).

LAW AND ANALYSIS

Section 1362(a) provides that a small business corporation may elect to be an S corporation.

Section 1362(b) provides 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 beginning 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 any taxable year after the date prescribed by § 1362 for making the election or no §
PLR-110910-00
2

1362(a) election is made for any 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.

CONCLUSIONS

After applying the law to the facts submitted and the representations made, we conclude that X has established reasonable cause for not making a timely election and is eligible for relief under § 1362(b)(5). Accordingly, assuming that X otherwise qualifies as a subchapter S corporation as of D2 and X’s shareholders make any adjustments to their Federal income tax returns necessary to comply with this ruling, if X makes an election to be an S corporation by filing with the appropriate Service Center a completed Form 2553, containing an effective date of D2 for the election, within 60 days following the date of this letter, then such election will be treated as timely made. A copy of this letter should be attached to the Form 2553 filed with the Service Center. A copy is enclosed for that purpose.

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 is an S corporation for federal tax purposes.

The ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for the ruling, it is subject to verification on examination.

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.

Pursuant to a power of attorney on file with this office, we are sending a copy of this letter to X’s authorized representative.

Sincerely yours,
Robert G. Honigman
Acting Assistant to the Chief, Branch 3
Office of the Assistant Chief Counsel
(Passthroughs and Special Industries)
Enclosures (2)
Copy of this letter
Copy for § 6110 purposes