PLR 200119041: Late S corporation election granted relief for reasonable cause

Plain-English summary

A corporation intended to be treated as an S corporation from its incorporation date, but did not file its election on time. The IRS found reasonable cause for the late filing and granted relief under section 1362(b)(5). If the corporation otherwise qualified for S corporation status, the IRS would recognize that status from its incorporation date. The corporation was instructed to file a completed Form 2553 with a copy of the ruling within 60 days.

Ruling snapshot

• Question: Could the late S corporation election be treated as timely from the corporation's incorporation date?
• Outcome: Approved, provided the corporation otherwise qualified as an S corporation and submitted Form 2553 as directed.
• Key authorities: IRC § 1362(a) and (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200119041
Washington, DC 20224
Release Date: 5/11/2001
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:B1-PLR-116231-00
Date:
Feb 8, 2001

Legend:

X =

D1 =

This responds to a letter dated August 1, 2000, together with subsequent correspondence, submitted on behalf of X, requesting relief under § 1362(b)(5) of the Internal Revenue Code.

FACTS

X was incorporated on D1. X intended to be treated as an S corporation for federal income tax purposes effective on D1, but the S election 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 the corporation will be treated as an S corporation for the year in which the election is made. If the election is made after the first two and one-half months of a corporation’s taxable year, then the corporation will not be treated as an S corporation until the taxable year after the year in which the S election is made.

Section 1362(b)(5) provides that if no election is made pursuant to § 1362(a), or, if made, the election is made after the date prescribed for making such an election, and the Secretary determines there was reasonable cause for the failure to timely make the election, then the Secretary may treat such an election as timely made for such taxable year and effective as of the first day of that tax year.
PLR-116231-00
2

X did not file a timely election to be treated as an S corporation under § 1362(a) effective on D1. X has, however, 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 provided that X otherwise qualifies as a subchapter S corporation, we conclude that X will be recognized as an S corporation effective D1. 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 expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. Specifically, no opinion is expressed concerning whether the original election made by X to be treated as an S corporation was a valid election under section 1362.

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.

Sincerely,
/s/ Dianna K. Miosi
Chief, Branch 1
Associate Chief Counsel
(Passthroughs and Special Industries)
Enclosures (2) copy of this letter copy for § 6110 purposes