PLR 200114019: Sole shareholder's late S election gets relief

Plain-English summary

A corporation's sole shareholder wanted S corporation treatment from its incorporation date, but no election was filed on time. The IRS found reasonable cause for the missed election and granted relief under IRC § 1362(b)(5). It ruled that the corporation would be treated as an S corporation from incorporation if it otherwise qualified and filed a properly completed Form 2553 within 60 days of the letter. The corporation had to attach a copy of the ruling to the form. The IRS did not independently determine whether the corporation satisfied all S corporation requirements.

Ruling snapshot

• Question: Can the corporation's S election take effect from incorporation despite the missed filing?
• Outcome: Approved, subject to qualification and a Form 2553 filing within 60 days
• Key authorities: IRC § 1362(a), (b)(5)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200114019
Washington, DC 20224
Release Date: 4/6/2001
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:B01-PLR-130158-00
Date:
January 3, 2001

X
=

Date 1 =
:
This responds to a letter dated November 22, 2000, and subsequent correspondence, submitted on behalf of X, requesting relief under § 1362(b)(5) of the Internal Revenue Code.

Facts

X was incorporated on Date 1. The sole shareholder of X desired that X elect S corporation treatment effective on Date 1, but the election to be treated as an S corporation was not timely filed. Accordingly, X requests a ruling that it will be treated as an S corporation effective Date 1.

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.
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 timely make such election, 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 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 2 PLR-130158-00

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 Date 1. 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 or implied as to the federal income tax consequences of the transaction described above under any other provision of the Code. 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 the taxpayer.

Sincerely,
/s/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