PLR 200051023: Late S election granted effect from incorporation

Plain-English summary

A corporation intended to elect S status from its incorporation date but missed the filing deadline. The IRS found reasonable cause under IRC § 1362(b)(5) and ruled that the corporation would be recognized as an S corporation from that date if it otherwise qualified. It directed the corporation to submit a completed Form 2553 with a copy of the letter within 60 days. The ruling did not address other tax consequences.

Ruling snapshot

• Question: Can the corporation receive relief for a late S election effective on its incorporation date?
• Outcome: Approved, subject to S corporation eligibility and a Form 2553 filing within 60 days.
• Key authorities: IRC §§ 1362(a), 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200051023
Washington, DC 20224
Release Date: 12/22/2000
Index Number: 1362.00-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:Br.1-PLR-116652-00
Date:
September 21, 2000

Legend:

X =

D1 =
:
This letter responds to the ruling request dated July 21, 2000, that was submitted by your representative on behalf of X, and which requests relief under § 1362(b)(5) of the Internal Revenue Code.

FACTS

X was incorporated on D1. X intended to be treated as an S corporation for federal income tax purposes effective on D1, 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 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 the corporation will be treated as an S corporation for the year in which the election is made. If the election is made after the first two and one-half months of a corporation’s taxable year, then the 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 no election is made pursuant to § 1362(a), or, if made, the election is made after the date prescribed for making such an election, and the Secretary determines 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 tax year.

X did not file a timely election to be treated as an S corporation under § 1362(a)

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PLR-116652-00

effective on D1. X has, however, 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 provided that X otherwise qualifies as a subchapter S corporation, we conclude that X will be recognized as an S corporation effective D1. 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 specifically set forth above, no opinion is expressed as to the federal tax consequences of the transaction described above under any other provision of the Internal Revenue Code.

This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

Pursuant to the power of attorney on file with this office, the original of this letter is being sent to the taxpayer and a copy will be sent to the taxpayer’s representative.

Sincerely yours,
/s/ Dianna K. Miosi
Chief, Branch 1
Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosures: 2
Copy of this letter
Copy for §6110 purposes