PLR 200140047: Corporation receives relief for a late S election

Plain-English summary

A corporation's shareholders intended to elect S corporation treatment from a specified date, but the election was not filed on time. The IRS found reasonable cause for the missed deadline under § 1362(b)(5). It agreed to treat the corporation as an S corporation from the requested date if it otherwise qualified. The corporation had to file Form 2553 with a copy of the ruling within 60 days. The IRS did not independently decide whether the corporation met all S corporation requirements.

Ruling snapshot

• Question: Could the missed S election take effect on the shareholders' intended date?
• Outcome: Approved: late election relief was granted, subject to eligibility and filing.
• Key authorities: IRC § 1362(a), (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200140047
Washington, DC 20224
Release Date: 10/5/2001
Index Number: 1362.00-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:Br.1-PLR-114250-01
Date:
July 5, 2001

X =

State =

D1 =

D2 =

This responds to a letter dated January 5, 2001, and additional correspondence, submitted on behalf of X, requesting relief under section 1362(b)(5) of the Internal Revenue Code.

FACTS

X was incorporated on D1 under the laws of State. The shareholders of X desired that X elect S corporation treatment effective on D2, but the election to be treated as an S corporation was not timely filed. Accordingly, X requests a ruling that it will be treated as an S corporation effective D2.

LAW AND ANALYSIS

Section 1362(a) provides that a small business corporation may elect to be an S corporation. Section 1362(b) provides the rule on when an S election will be effective.

Section 1362(b)(2) provides in relevant part that if an S election is made within the first two and one-half months of a corporation’s taxable year, then the corporation 2 PLR-114250-01

will be treated as an S corporation for the year in which the election is made. Under section 1362(b)(3), however, 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 filed.

Section 1362(b)(5) provides that if: (1) 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 such election, then the Secretary may treat such an election as timely made for such taxable year and section 1362(b)(3) shall not apply.

X did not file an election to be treated as an S corporation under section 1362(a).
X has, however, established reasonable cause for not making a timely S election and is entitled to relief under section 1362(b)(5).

CONCLUSION

Based solely on the facts submitted and the representations made, and provided that X otherwise qualifies as an S corporation, we conclude that X will be treated as an S corporation effective D2. Within 60 days from the date of this letter, X should submit a properly completed Form 2553, with a copy of this letter attached, to the relevant service center.

Except as specifically set forth above, no opinion is expressed or implied as to the federal income tax consequences of the transaction described above under any other provision of the Code. Specifically, no opinion is expressed concerning whether X is, in fact, 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.

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