PLR 200126029: Late S corporation election treated as timely if filed within 60 days

Plain-English summary

A corporation intended to be an S corporation from its first tax year but failed to make the election on time. It filed an S corporation return, and its shareholders filed returns consistent with that status. The IRS found reasonable cause for the missed election and said it would treat the election as timely if the company filed a completed Form 2553 within 60 days of the letter. The ruling did not decide whether the company otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Can the corporation receive relief for a late S corporation election?
• Outcome: Approved if it files Form 2553 within 60 days of the letter.
• Key authorities: IRC §§ 1362(b)(5), 1361(b).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Number: 200126029
Washington, DC 20224
Release Date: 6/29/2001
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2 - PLR-119142-00
Date:
April 3, 2001

X =

A =

D1 =

Year 1 =

Dear
:
This letter responds to your letter, dated September 18, 2000, and subsequent correspondence, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.
The information submitted states that X was incorporated on D1 in Year 1. A, as the CEO of X, represents that X was intended to be an S corporation beginning Year 1, its first taxable year. X’s Form SS-4, Application for Employer Identification Number, evidences this intent. For Year 1 X filed a Form 1120S, U.S. Income Tax Return for an S Corporation, and the shareholders of X filed individual tax returns consistent with X being an S corporation.

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 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

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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 requesting it.
Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

Sincerely yours,
J. THOMAS HINES
Chief, Branch 2
Office of the Associate
Chief Counsel
(Passthroughs and
Special Industries)
Enclosures: 2
Copy of this letter
Copy for § 6110 purposes