PLR 200145014: Corporation's late S election treated as timely

Plain-English summary

A corporation intended to elect S status from its incorporation date, but did not file Form 2553 on time. The IRS found reasonable cause for the late filing under section 1362(b)(5). It ruled that the election would be treated as timely for the corporation's first taxable year if it filed Form 2553 within 60 days of the ruling. The IRS did not decide whether the corporation otherwise qualified for S status.

Ruling snapshot

• Question: Could the corporation's late S election take effect for its first taxable year?
• Outcome: Approved, contingent on filing Form 2553 within 60 days.
• Key authorities: IRC § 1362(a), (b)(3), (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200145014
Washington, DC 20224
Release Date: 11/9/2001
Index Number: 1362.01-03
Person to Contact:

Telephone Number:
(202) 622-3080
Refer Reply To:
CC:DOM:PSI:3 PLR-106854-01
Date:
August 6, 2001

LEGEND:

X
=

D
=

Dear

This letter responds to a letter, dated January 24, 2001, requesting a ruling on behalf of X under § 1362(b)(5) of the Internal Revenue Code that X's S corporation election will be effective as of the taxable year beginning D.

FACTS

X was incorporated on D and it was decided that X would elect S corporation status. The Form 2553, Election by a Small Business Corporation, however, was not filed timely.

X requests a ruling that it will be recognized as an S corporation effective for the taxable year beginning D under § 1362(b)(5).

LAW AND 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. 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 beginning the year in which the election is made. 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 made.
PLR-106854-01
2

Section 1362(b)(5) provides that if (1) an election under § 1362(a) is made for any taxable year after the date prescribed by § 1362 for making the election or no § 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 the election, then the Secretary may treat the election as timely made for such taxable year.

CONCLUSIONS

Based on the facts submitted and the representations made, we conclude that X has established reasonable cause for not making a timely election and is eligible for relief under § 1362(b)(5). Accordingly, if X makes an election to be an S corporation by filing with the appropriate Service Center a completed Form 2553, containing an effective date of D for the election, within 60 days following the date of this letter, then such election will be treated as timely made. A copy of this letter should be attached to the Form 2553 filed with the Service Center. A copy is enclosed for that purpose.

Except as specifically set forth above, we express or imply no opinion concerning the federal tax consequences of the facts described above under any other provision of the Code. Specifically, we express or imply no opinion concerning whether X is an S corporation for Federal tax purposes.

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,
Christine Ellison
Chief, Branch 3
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures (2)
Copy of this letter
Copy for § 6110 purposes