PLR 200130028: Late S corporation election receives reasonable cause relief

Plain-English summary

A company intended to be an S corporation from the date it first had shareholders, but its Form 2553 was not filed on time. The IRS found reasonable cause and granted relief under IRC § 1362(b)(5) for the tax year beginning on that date. The company had to file Form 2553 with the requested effective date and attach the ruling within 60 days of the letter. The IRS did not decide whether the company otherwise qualified as an S corporation for federal tax purposes.

Ruling snapshot

• Question: Could the company's late S election take effect in its first year with shareholders?
• Outcome: Approved, conditional on filing Form 2553 with the ruling within 60 days.
• Key authorities: IRC § 1362(a), (b)(3), and (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200130028
Washington, DC 20224
Release Date: 7/27/2001
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3-PLR-109968-01
Date:
April 30, 2001

Legend

Company =

A
=

B
=

Date 1 =

Date 2 =

Dear

This responds to your letter dated January 27, 2001, and subsequent submissions, requesting a ruling under section 1362(b)(5) of the Internal Revenue Code.

FACTS

According to the information submitted, Company was incorporated on Date 1. It is represented that Company intended to be an S corporation effective Date 2, the date Company first had shareholders. The shareholders of Company are A and B. It was discovered that Company’s Form 2553, Election by a Small Business Corporation, had not been timely filed.

Company requests a ruling under section 1362(b)(5) that its section 1362(a) election will be treated as timely made for its taxable year that begins on Date 2.

LAW AND ANALYSIS

Section 1362(a) generally provides that a small business corporation may elect to be an S corporation.

Section 1362(b) provides when an S election will be effective. Generally, if an S election is made within the first two and one half months of a corporation's taxable year,

PLR-109968-01
2

then that corporation will be treated as an S corporation beginning the year in which the election is made.

Section 1362(b)(3) provides that if an S election is made after the first two and one half months of a corporation’s taxable year, then that 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 section 1362(a) is made for any taxable year after the date prescribed by section 1362 for making the election or no section 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.

CONCLUSIONS

After applying the law to the facts submitted and the representations made, we conclude that Company has established reasonable cause for not making a timely election and is eligible for relief under section 1362(b)(5). This ruling is contingent on Company filing Form 2553 with an effective date of Date 2, with the appropriate Service Center within 60 days from the date of this ruling. A copy of this letter should be attached to the Form 2553 filed with the Service Center.

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. Specifically, no opinion is expressed concerning whether Company is an S corporation for federal tax purposes.

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.

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 Branch Chief, Branch 3
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

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