PLR 200125027: Company may make late S corporation election for its first year

Plain-English summary

The sole shareholder of a corporation intended S corporation treatment for its first tax year. A company resolution recorded that intent, but the company missed the deadline for Form 2553. The IRS found reasonable cause for the late election under section 1362(b)(5). It would treat the election as timely if the company filed a completed Form 2553 within 60 days of the letter, effective for that first tax year. The IRS did not decide whether the company otherwise met the requirements for a small business corporation.

Ruling snapshot

• Question: Could the corporation's late S corporation election be treated as timely for its first tax year?
• Outcome: Approved, provided Form 2553 was filed within 60 days.
• Key authorities: IRC §§ 1362(b)(5), 1361(b).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200125027
Washington, DC 20224
Release Date: 6/22/2001
Index Number: 1362.00-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2-PLR-130152-00
Date:
March 16, 2001

Legend

X:

A:

D1:

D2:

Year 1:

Dear
:

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

The represented facts are as follows: X was incorporated on D1. A, the sole shareholder of X, intended X to be an S corporation effective for the Year 1 taxable year, but Form 2553, Election by a Small Business Corporation, was not filed timely. This intent is evidenced by a resolution of the officers of X, dated D2 of Year 1, which states that X will elect to be taxed under subchapter S. Accordingly, X requests a ruling that it will be treated as an S corporation effective D1.

Section 1362(b)(5) of the Code 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 to make a timely election to be an S corporation for X’s Year 1 taxable year. Accordingly, provided that X makes an election

2
PLR-130152-00

to be an S corporation by filing a completed 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 set forth above, no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the Code, including whether X was or is a small business corporation under § 1361(b) of the Code.

This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

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

Sincerely yours,
Jeanne M. Sullivan
Assistant to the Chief, Branch 2
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures: 2
Copy of this letter
Copy for § 6110 purposes