PLR 200138020: Late S election relief states a different effective date

Plain-English summary

A corporation's shareholders intended an S election to take effect on a date labeled D1, but the election was late. The IRS found reasonable cause and granted relief under § 1362(b)(5). The conclusion says the corporation would be recognized as an S corporation effective D2 if it otherwise qualified, even though the facts and analysis describe the intended effective date as D1. Those dates are redacted, so the letter does not explain the difference. It directed the corporation to submit Form 2553 with a copy of the ruling by a redacted deadline labeled D3.

Ruling snapshot

• Question: Could the corporation receive relief for a late S election intended to take effect on D1?
• Outcome: Mixed: relief was granted, but the conclusion states an effective date of D2.
• Key authorities: IRC §§ 1362(a), 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200138020
Washington, DC 20224

Release Date: 9/21/2001
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:Br.1 - PLR-113417-01
Date:
June 25, 2001

Legend:

X =

State =

D1 =

D2 =

D3 =

This responds to your representative’s letter dated February 13, 2001, submitted on behalf of X, requesting relief under section 1362(b)(5) of the Internal Revenue Code.

FACTS

X began doing business under State law on D1. The shareholders of X intended that X elect to be treated as an S corporation effective D1. However, the election to be treated as an S corporation was not timely filed.

LAW AND ANALYSIS

Section 1362(a) provides that a small business corporation can elect to be treated as an S corporation.

Section 1362(b) provides when an S election becomes effective. If an S election is made within the first two and one-half months of a corporation’s taxable year, then that corporation will be treated as an S corporation for the year in which the election was made. If an election is made after the first two and one-half months of a corporation’s taxable year, then the corporation will generally not be treated as an S corporation until the following taxable year.

However, section 1362(b)(5) provides that if no election is made pursuant to section 1362(a), or if the election is made after the date prescribed for making such an election, and 2
PLR-113417-01
the Secretary determines reasonable cause existed for the failure to timely make the election, then the Secretary can treat such an election as timely made for that taxable year and effective as of the first day of that taxable year.

In the present case, X failed to timely elect S corporation treatment effective D1.
However, X has established reasonable cause for not making a timely election and is thus entitled to relief under section 1362(b)(5).

CONCLUSION

Based solely on the facts submitted and representations made, and provided that X otherwise qualifies as a subchapter S corporation, we conclude that X will be recognized as an S corporation effective D2. X should submit a properly completed Form 2553, with a copy of this letter attached, to the relevant service center by D3.

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.

This ruling is directed only to the taxpayers 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 your authorized representative.

Sincerely,
Dianna K. Miosi
Chief, Branch 1
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)
Enclosures (2):
Copy of this letter
Copy for section 6110 purposes