PLR 200125023: Corporation receives relief for an unfiled S election

Plain-English summary

A corporation with two shareholders intended S corporation treatment from its formation but learned that its Form 2553 had not been filed on time. The IRS found reasonable cause under section 1362(b)(5) for the missed election. It granted relief conditioned on filing Form 2553 within 60 days of the ruling, showing the corporation's formation date as the effective date. The IRS expressly did not determine whether the company was an S corporation for federal tax purposes.

Ruling snapshot

• Question: Could the corporation's missed S election be treated as timely from its formation date?
• Outcome: Approved, conditioned on filing Form 2553 within 60 days.
• Key authorities: IRC § 1362(a), (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200125023
Washington, DC 20224
Release Date: 6/22/2001
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:BR3-PLR-130148-00
Date:
March 15, 2001

Legend

Company =

X
=

Y
=

State =

Date 1 =

Dear

This letter responds to your letter dated November 16, 2000, and subsequent correspondence submitted on behalf of Company, requesting a ruling under section 1362(b)(5) of the Internal Revenue Code.

FACTS

According to the information submitted, Company was incorporated in State on Date 1. The shareholders of Company are X and Y. It is represented that Company intended to be an S corporation since its formation. Company discovered that its Form 2553, Election by a Small Business Corporation, had not been timely filed.

Company requests a ruling that its section 1362(a) election will be treated as timely made and effective as of Date 1 under section 1362(b)(5).

LAW AND ANALYSIS

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

Section 1362(b) provides when an S election will be effective. Generally, if an S election is made within the first two and one half months of a corporation’s taxable year,

PLR-130148-00
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then that corporation will be treated as an S corporation beginning 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 after the year in which the S election is made.

Section 1362(b)(5) provides that if (1) an election under section 1362(a) is made for any taxable year after the date prescribed by section 1362 for making the election or no section 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 the election, then the Secretary may treat the election as timely made for such taxable year.

CONCLUSIONS

After applying the law to the facts submitted and the representations made, we conclude that Company has established reasonable cause for not making a timely election and is eligible for relief under section 1362(b)(5). This ruling is contingent on Company filing Form 2553 with an effective date of Date 1, 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 filed with the Service Center.

Except as specifically set forth above, no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the Code. Specifically, no opinion is expressed concerning whether Company is 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.

Under the Power of Attorney on file with this office, we are sending a copy of this letter to your authorized representatives.

Sincerely,
Mary Beth Collins
Assistant to the Branch Chief, Branch 3
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)
Enclosures (2):
Copy of this letter
Copy for § 6110 purposes