PLR 200128045: Late S corporation election receives conditional relief

Plain-English summary

A corporation intended to be an S corporation when it first had shareholders, but it did not file Form 2553 on time. It filed S corporation tax returns for that year and later years. The IRS found reasonable cause for the late election under § 1362(b)(5). It would treat the election as timely for the first year if the corporation filed a completed Form 2553 within 60 days of the ruling date. The IRS gave no opinion on whether the corporation otherwise qualified as a small business corporation under § 1361(b).

Ruling snapshot

• Question: Can the corporation's late S election be treated as timely for its first year with shareholders?
• Outcome: Approved, conditioned on filing Form 2553 within 60 days.
• Key authorities: IRC §§ 1362(b)(5), 1361(b).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Number: 200128045
Washington, DC 20224
Release Date: 7/13/2001
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2 - PLR-131018-00
Date:
April 17, 2001

X =

A =

D1 =

Year 1 =

Dear
:
This letter responds to a letter, dated July 31, 2000, and subsequent correspondence, submitted on behalf of X by its authorized representative, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.
The information submitted states that X first had shareholders on D1 of Year 1. A, as the treasurer of X, represents that X was intended to be an S corporation beginning D1 of Year 1. The minutes of a special meeting of the shareholders of X evidences this intent. However, no Form 2553, Election by a Small Business Corporation, was timely filed with the Internal Revenue Service. For Year 1, and subsequent years, X filed a Form 1120S, U.S. Income Tax Return for 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

-2-

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 requesting it.
Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.
In accordance with 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
Acting Senior Technician
Reviewer, Branch 2
Office of the Associate
Chief Counsel
(Passthroughs and
Special Industries)
Enclosures: 2
Copy of this letter
Copy for § 6110 purposes