PLR 200125029: Company receives relief for a late S corporation election

Plain-English summary

A corporation and its shareholders intended to elect S corporation status from the company's first tax year, and the company filed an S corporation return. The election itself was late. The IRS found reasonable cause for the missed deadline under section 1362(b)(5). It would treat the election as timely if the company filed Form 2553 within 60 days of the letter, effective for its first tax year. The IRS did not determine whether the company otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Could the company's late S corporation election take effect in 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

Number: 200125029
Release Date: 6/22/2001
Index No.: 1362.01-03

CC:PSI:2 - PLR-100867-01

March 19, 2001

X =

A =

B =

D1 =

Year 1 =

Dear :

This responds to a letter dated December 19, 2000, submitted on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated on D1 of Year 1. The shareholders of X are A and B. A, X's president, represents that it was the shareholder’s intent to have X elect to be an S corporation effective D1 of Year 1. X filed its tax return using Form 1120S, U.S. Income Tax Return for an S corporation.

Section 1362(b)(5) 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,

-2-

we conclude that X has established reasonable cause for failing to make a timely election to be an S corporation effective for X’s tax year beginning D1 of Year 1. Accordingly, provided that X makes an election to be an S corporation by filing a 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 ruled upon above, no opinion is expressed concerning the federal tax consequences of the facts described above under any other provisions of the Code, including whether X was or is a small business corporation under § 1361(b).

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.

Pursuant to the power of attorney on file with this office a copy of this letter is being sent to X’s authorized representative.

Sincerely yours,
JEANNE M. SULLIVAN
Assist 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