PLR 200115021: Late S corporation election after business began

Plain-English summary

A corporation's sole shareholder intended it to be an S corporation when business activity began, and its tax return was filed on Form 1120S. The corporation had missed the election deadline. The IRS found reasonable cause under section 1362(b)(5) and ruled that an election for the requested tax year would be treated as timely if the corporation filed Form 2553 within 60 days of the letter. The IRS did not decide whether the corporation otherwise met the requirements for a small business corporation.

Ruling snapshot

• Question: Can a late S corporation election be treated as timely for the year business began?
• Outcome: Approved, contingent on filing Form 2553 within 60 days
• Key authorities: IRC §§ 1361(b), 1362(b)(5)

Full text (IRS public release)

INTERNAL REVENUE SERVICE

Number: 200115021
Release Date: 4/13/2001
Index No.: 1362.01-03

CC:PSI:2 - PLR-118594-00

January 11, 2001

X =

A =

D1 =

D2 =

Year 1 =

Year 2 =

Dear :
This responds to a letter dated September 8, 2000, and subsequent correspondence, submitted on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated on D1 of Year 1. Business activity for X commenced on D2 of Year 2. The sole shareholder of X is A. A, X's president, represents that it was A’s intent to have X elect to be an S corporation effective D2 of Year 2. X’s Form SS-4, Application for Employer Identification Number, reflects that it was A’s intent to have X treated as an S corporation. X filed its tax return using Form 1120S, U.S. Income Tax Return for an S corporation.

. Section 1362(b)(5) provides that if--(A) an election under
§ 1362(a) is made for any taxable year after the date prescribed by § 1362(b) for making such election for such taxable year or no such election is made for any taxable year, and (B) the Secretary determines that there was reasonable cause for the failure to timely make such election, the Secretary may treat such an election as timely made for such taxable year.

Based solely on the facts and the representations submitted, we conclude that X has established reasonable cause for failing to make a timely election to be an S corporation effective for X’s tax year beginning D2 of Year 2. Accordingly, provided that X makes an election to be an S corporation by filing a Form 2553 with the appropriate service center effective for its Year 2 taxable year, within 60 days following the date of this letter, then such election will be treated as timely made for X’s Year 2 taxable year. A copy of this letter should be attached to the Form 2553.

Except as specifically ruled upon above, no opinion is expressed concerning the federal tax consequences of the facts described above under any other provisions of the Code, including whether X was or is a small business corporation under § 1361(b).
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.
Sincerely yours,
J. THOMAS HINES
Branch Chief, Branch 2
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

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