PLR 200125057: Late S corporation election allowed after adviser missed filing

Plain-English summary

A corporation's sole shareholder relied on an outside adviser to file Form 2553 for S corporation status, but the form was not filed on time. The IRS found reasonable cause for the missed deadline. It said the election would be treated as timely if the corporation filed a completed Form 2553 within 60 days of the letter, specifying the intended effective date. The IRS did not decide whether the corporation otherwise qualified as an S corporation.

Ruling snapshot

• Question: Could the corporation's late S election be treated as timely after its adviser missed the filing deadline?
• Outcome: Approved: timely treatment if Form 2553 was filed within 60 days.
• Key authorities: IRC § 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200125057
Washington, DC 20224
Release Date: 6/22/2001
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-132442-00
Date:
March 23, 2001

LEGEND

X
=

A
=

D1
=

D2
=

State =

Dear

This letter responds to a letter dated December 15, 2000, and subsequent correspondence submitted by your authorized representative on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

FACTS

According to the information submitted, X was incorporated under State law on D1, and it was subsequently decided that X would be an S corporation. A, the sole shareholder of X, relied on an outside adviser to file X's Form 2553, Election by a Small Business Corporation, with an effective date of D2. The Form 2553, however, was not timely filed.

X requests a ruling that it will be recognized as an S corporation effective for the taxable year beginning D2 under § 1362(b)(5).

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.
PLR-132442-00
2
Generally, 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 an S 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 (1) an election under § 1362(a) is made for any taxable year after the date prescribed by § 1362 for making the election or no § 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.

CONCLUSION

Based solely on the facts submitted and representations made, we conclude that X has established reasonable cause for not making a timely election and is eligible for relief under § 1362(b)(5). Accordingly, if X makes an election to be an S corporation by filing with the appropriate Service Center a completed Form 2553, containing an effective date of D2 for the election, within 60 days following the date of this letter, then such election will be treated as timely made. A copy of this letter should be attached to the Form 2553 filed with the Service Center. A copy is enclosed for that purpose.

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 X is an S corporation for federal tax purposes.

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.

Under a power of attorney on file with this office, we are sending a copy of this letter to your authorized representative.

Sincerely,
Mary Beth Collins
Assistant to the Chief, Branch 3
Office of Associate Chief Counsel
(Passthroughs and Special Industries)

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