PLR 200118014: Late S election relief requires timely amended returns

Plain-English summary

A company's shareholder wanted S corporation treatment from the company's incorporation date, but the election was not filed on time. The IRS found reasonable cause and granted relief under section 1362(b)(5), provided the company otherwise qualified. It required the company to send an original Form 2553 and the ruling to the service center by the earlier of 60 days after the letter or the expiration of the limitations period for affected returns. The company and shareholders also had to file any required amended returns before the applicable limitations period expired. Failure to meet those conditions would void the ruling.

Ruling snapshot

• Question: May the late S election take effect from the company's incorporation date?
• Outcome: Approved, subject to eligibility, the Form 2553 deadline, and required amended returns.
• Key authorities: IRC § 1362(a), (b)(2), (b)(3), (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200118014
Washington, DC 20224
Release Date: 5/4/2001
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:B01-PLR-100430-01
Date:
Jan 30, 2001

X
=

Date 1 =

Dear

This responds to a letter dated December 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 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 2
PLR-100430-01

has, however, established reasonable cause for not making a timely S election and is 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. An original form 2553 along with a copy of this letter must be forwarded to the relevant Service Center within the earlier of 60 days from the date of this letter or the expiration of the statute of limitations for any affected income tax returns. X and the shareholders of X must file all amended returns required as a result of the treatment of X as an S corporation effective Date 1, prior to the expiration of the applicable statute of limitations period. This ruling shall be null and void should X or any of the shareholders of X fail to comply with the requirements of this paragraph.

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 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 your authorized representative.

Sincerely,
/s/ David R. Haglund
Senior Technician Reviewer, Branch 1
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)
Enclosures (2)
Copy of this letter
Copy for § 6110 purposes