PLR 200140069: Corporation receives relief for missed S election deadline

Plain-English summary

A corporation with two shareholders intended to be taxed as an S corporation, and the shareholders believed an election had been filed on time. Form 2553 had not been filed timely. The IRS ruled under § 1362(b)(5) that the election would be treated as timely for the corporation's first taxable year if it filed Form 2553 within 60 days, effective from its incorporation date, and attached the ruling letter. The IRS gave no opinion on whether the corporation otherwise qualified as an S corporation.

Ruling snapshot

• Question: Could the corporation's missed S election deadline be excused for its first taxable year?
• Outcome: Approved, conditioned on filing Form 2553 within 60 days.
• Key authorities: IRC § 1362(a), (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200140069
Washington, DC 20224
Release Date: 10/5/2001
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-118130-01
Date:
July 10, 2001

LEGEND:

X
=

Shareholders =

D1
=

Dear

This letter responds to a letter dated November 22, 2000, requesting a ruling on behalf of X under § 1362(b)(5) of the Internal Revenue Code.

FACTS:

According to the information submitted, X was incorporated on D1. X has two shareholders, Shareholders. It is represented that X intended to be taxed as an S corporation and that its Shareholders believed that a timely S election had been made. However, Form 2553, Election by a Small Business Corporation, was not timely filed.

X requests a ruling under § 1362(b)(5) that its § 1362(a) election will be treated as timely made for its taxable year beginning on D1.

LAW & ANALYSIS:

Section 1362(a) 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, then that corporation will be treated as an S corporation for 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 following the year in which the S election is made.

Section 1362(b)(5) provides that if no § 1362(a) election is made for any taxable year and 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 and § 1362(b)(3) shall not apply.

CONCLUSIONS:

Applying the relevant law to the facts submitted and representations made, we rule that X’s § 1362(a) election will be treated as timely made for its taxable year beginning on D1. However, this ruling is contingent on X filing Form 2553, with an effective date of D1, 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 X otherwise qualifies as an S corporation.

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.

Pursuant to a power of attorney on file with this office, we are sending a copy of this letter to X’s authorized representative.

Sincerely yours,
Mary Beth Collins
Assistant to the Chief, Branch 3
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures
Copy for § 6110 purposes