PLR 200121032: Late S election allowed from asset acquisition date

Plain-English summary

A corporation with four shareholders intended S corporation treatment from the date it first acquired assets, but it discovered that its election had not been filed on time. The IRS ruled under IRC § 1362(b)(5) that the election would be treated as timely for the tax year beginning on that date. The ruling depends on the corporation filing Form 2553 within 60 days, with the intended effective date. The IRS did not decide whether the corporation otherwise qualified as an S corporation.

Ruling snapshot

• Question: Can the corporation's late S election take effect when it first acquired assets?
• Outcome: Approved if Form 2553 is filed within 60 days with the stated effective date.
• Key authorities: IRC § 1362(a), (b)(3), (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200121032
Washington, DC 20224
Release Date: 5/25/2001
Index Number: U.I.L. No.: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-124973-00
Date:
February 21, 2001

Legend

Company
=

State
=

Shareholders =

a
=

b
=

Dear

This letter responds to a letter dated October 13, 2000, and subsequent correspondence, requesting a ruling on behalf of Company under § 1362(b)(5) of the Internal Revenue Code.

The information submitted discloses that Company was incorporated on a in State. Company has four shareholders, Shareholders. It is represented that Company has intended to be an S corporation since b, when it first acquired assets. However, Company discovered that its S election had not been timely filed.

Company requests a ruling under § 1362(b)(5) that its § 1362(a) election will be treated as timely made for its taxable year that begins on b.

Section 1362(a) provides that a small business corporation may elect to be an S corporation.

Section 1362(b) explains when an S election will be effective. Generally, if an S

PLR-124973-00
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election is made within the first two and one half months of a corporation’s taxable year, then that corporation will be treated as an S corporation for the year in which the election is made. Section 1362(b)(3) provides that 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 following the year in which the S election is made.

Section 1362(b)(5) provides that if no § 1362(a) election is made for any taxable year, and 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.

Applying the relevant law to the facts submitted and representations made, we rule that Company's § 1362(a) election will be treated as timely made for its taxable year that begins on b. However, this ruling is contingent on Company filing Form 2553, Election by a Small Business Corporation, with an effective date of b, with the appropriate Service Center within 60 days from the date of this ruling. A copy of this letter should be attached to the Form 2553.

Except as specifically set forth above, we express no opinion concerning the federal tax consequences of the foregoing facts. Specifically, we express no opinion on whether Company otherwise qualifies as an S corporation.

Under a power of attorney on file with this office, a copy of this letter is being sent to Company’s authorized representative.

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,
MARY BETH COLLINS
Assistant to the Chief, Branch 3
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosure:
Copy for section 6110 purposes