PLR 200140076: Late S corporation election may count from first tax year

Plain-English summary

A corporation's two shareholders intended S corporation status from its first taxable year, as correspondence with its accountant showed, but Form 2553 was filed late. The IRS found reasonable cause for the missed election deadline under § 1362(b)(5). It ruled that the election would be treated as timely for that year if the corporation filed a completed Form 2553 within 60 days of the letter and attached a copy of the ruling. The IRS gave no opinion on whether the corporation met the separate requirements to be a small business corporation under § 1361(b).

Ruling snapshot

• Question: Could the missed S election deadline be excused for the corporation's first taxable year?
• Outcome: Approved, conditioned on filing Form 2553 within 60 days.
• Key authorities: IRC §§ 1362(a), (b)(5), 1361(b).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200140076
Washington, DC 20224
Release Date: 10/5/2001
Index Number: 1362.00-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2-PLR-125836-01
Date:
July 10, 2001

Legend

X:

A:

B:

D1:

Year 1:

Dear
:

This letter responds to your letter dated March 30, 2001, and subsequent correspondence, submitted on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The represented facts are as follows: X was incorporated on D1. A and B, the shareholders of X on D1, intended X to be an S corporation effective for the Year 1 taxable year, but Form 2553, Election by a Small Business Corporation, was not filed timely. This intent is evidenced by correspondence between X’s accountant and A, X’s president, which states that X will elect to be taxed under subchapter S. Accordingly, X requests a ruling that it will be treated as an S corporation effective D1.

Section 1362(b)(5) of the Code 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 2
PLR-125836-01

corporation for X’s Year 1 taxable year. Accordingly, provided that X makes an election to be an S corporation by filing a completed 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 taxable year. A copy of this letter should be attached to the Form 2553.

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, including whether X was or is a small business corporation under § 1361(b) of the Code.

This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

Pursuant to a power of attorney on file with this office, a copy of this letter is being forwarded to X.

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