PLR 200137015: Corporation may file a late S election after showing reasonable cause

Plain-English summary

A corporation's sole shareholder intended S corporation treatment from the year the company was incorporated, and the company filed an S corporation tax return. The election itself was not timely made. The IRS found reasonable cause for the missed deadline and ruled that an election for that first year would be treated as timely if the company filed Form 2553 within 60 days of the letter. It did not decide whether the company met the definition of a small business corporation under § 1361(b).

Ruling snapshot

• Question: Can the company make its intended S election effective for its first tax year despite missing the filing deadline?
• Outcome: Approved, if Form 2553 is filed within 60 days with the ruling attached.
• Key authorities: IRC § 1362(b)(5).

Full text (IRS public release)

INTERNAL REVENUE SERVICE

Number: 200137015
Release Date: 9/14/2001
Index No.: 1362.01-03

CC:PSI:2 - PLR-107406-01

June 8, 2001
X =

A =

D1 =

Year 1 =

Dear

This responds to your letter dated January 5, 2001, 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 sole shareholder of X is A. A, X's president, represents that it was A 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, 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

-2-

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.

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