PLR 200117012: Late S corporation election receives conditional relief

Plain-English summary

A corporation intended to elect S corporation status from its first tax year but did not file Form 2553. It nevertheless filed its tax return as an S corporation. The IRS found reasonable cause for the missed election under section 1362(b)(5). It ruled that the election would be treated as timely if the corporation filed Form 2553 within 60 days of the letter, effective for its first tax year. The IRS did not decide whether the corporation otherwise qualified as a small business corporation under section 1361(b).

Ruling snapshot

• Question: Could the corporation make its late S election effective for its first tax year?
• Outcome: Approved, if Form 2553 was filed within 60 days of the letter.
• Key authorities: IRC §§ 1362(b)(5), 1361(b).

Full text (IRS public release)

INTERNAL REVENUE SERVICE

Number: 200117012
Release Date: 4/27/2001
Index No.: 1362.01-03

CC:PSI:2 - PLR-118615-00

January 23, 2001

X =

A =

B =

C =

D1 =

Year 1 =

Dear
This responds to your letter dated September 8, 2000, 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. The shareholders of X are A, B, and C. A, X's president, represents that it was the shareholders’ intent that X elect S corporation status effective D1 of Year 1. However, the Form 2553, Election by a Small Business Corporation, for X was not filed with the service center. 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

-2-

to make a timely election to be an S corporation effective for X’s tax year beginning D1 of Year 1. 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 1 taxable year, within 60 days following the date of this letter, then such election will be treated as timely made for X’s Year 1 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.

Pursuant to the power of attorney on file with this office a copy of this letter is being sent to X.

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