PLR 200146034: Late S election accepted after tax adviser missed filing

Plain-English summary

A corporation was meant to be an S corporation from the year it was formed. Its owner relied on tax advisers to file Form 2553, but the form was not filed on time. The IRS found reasonable cause for the late election under section 1362(b)(5). It ruled that the election would be treated as timely if the company filed a completed Form 2553 within 60 days of the letter, using its formation date as the effective date. The IRS did not decide whether the company otherwise qualified as an S corporation.

Ruling snapshot

• Question: May the corporation make its S election effective from formation despite the missed filing deadline?
• Outcome: Approved conditionally: file 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: 200146034
Washington, DC 20224
Release Date: 11/16/2001
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-125272-01
Date:
August 15, 2001

LEGEND

X =

A =

State =

d1 =

Dear

This letter responds to a letter dated March 28, 2001, by your authorized representative on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

FACTS

X was incorporated on d1 by A under the laws of State, and it was decided that X would be an S corporation. A relied upon his tax advisers to file X's Form 2553, Election by a Small Business Corporation. However, the Form 2553 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 that begins on d1.

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. If an S election is made within the first two and one-half months of a corporation's taxable year, then the corporation will be treated as an S corporation for 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 the corporation will not be treated as an S corporation

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until the taxable year after the year in which the S election is made.

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.

CONCLUSION

Based solely on the facts submitted and representations made, we conclude that X has established reasonable cause for failing to make a timely S election and that X 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 d1 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 expressly provided herein, we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter. 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) of the Code provides that it may not be used or cited as precedent.

Under a power of attorney on file with this office, we are sending a copy of this letter to your authorized representative.

Sincerely,
Mary Beth Collins
Senior Technician Reviewer, Branch 3
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

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