PLR 200109028: Late S corporation election receives reasonable cause relief

Plain-English summary

A corporation's shareholder intended for the corporation to be an S corporation from a specified effective date, but the election was not filed on time. The IRS found reasonable cause for the late election under IRC § 1362(b)(5). Assuming the corporation otherwise qualified for S corporation status on that date, the IRS said it would recognize the corporation as an S corporation from the requested date. The corporation was directed to file a completed Form 2553, with the ruling attached, within 60 days of the letter. The IRS did not decide whether the corporation met the separate eligibility requirements for S corporation status.

Ruling snapshot

• Question: Could the late S corporation election take effect on the corporation's requested date?
• Outcome: Approved, assuming S corporation eligibility and filing Form 2553 within 60 days.
• Key authorities: IRC §§ 1362(a), 1362(b), and 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200109028
Washington, DC 20224
Release Date: 3/2/2001
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:B01 PLR-125986-00
Date:
Nov 30, 2000

Legend

X
=

State =

D1 =

:

This responds to the letter dated September 29, 2000, submitted on behalf of X, requesting relief under § 1362(b)(5) of the Internal Revenue Code.

FACTS

X was incorporated under State law. X’s shareholder intended that X be a subchapter S corporation, effective D1; however, an S corporation election under § 1362 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 that corporation will be treated as an S corporation for 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.

2
CC:PSI:B01 PLR-125986-00

Section 1362(b)(5) provides that if: (1) an election under § 1362(a) is made for any taxable year after the date prescribed for making such election for such 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.

X did not timely file an election under § 1362(a) to be treated as an S corporation effective D1. X, however, has 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 assuming that X otherwise qualifies as a subchapter S corporation as of D1, we conclude that X will be recognized as an S corporation effective as of D1. X should file a completed Form 2553 (with a copy of this ruling attached) reflecting its election of subchapter S corporation status as of D1 with the applicable Service Center within 60 days of the date of this letter.

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 otherwise satisfies the S corporation eligibility requirements.

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. In accordance with the Power of Attorney on file with this office, a copy of this ruling is being sent to the taxpayer’s authorized representative.

Sincerely,
/s/ Dianna K. Miosi

Dianna K. Miosi
Chief, Branch 1
Associate Chief Counsel
(Passthroughs and Special Industries)

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