PLR 200146036: S election may be filed late for corporation's first year

Plain-English summary

A corporation with two shareholders intended to be taxed as an S corporation from its first year, but the IRS service center had no record of a timely completed Form 2553. Its president asked for late election relief. The IRS found reasonable cause for missing the deadline and ruled that an election filed within 60 days of the letter would be treated as timely for the first year. The IRS did not determine whether the corporation otherwise qualified as a small business corporation.

Ruling snapshot

• Question: May the company file its first-year S corporation election after the deadline?
• Outcome: Approved conditionally: file Form 2553 within 60 days.
• Key authorities: IRC §§ 1361(b), 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200146036
Washington, DC 20224
Release Date: 11/16/2001
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2 - PLR-135420-01
Date:
August 16, 2001

X
=

A
=

B
=

D1 =

Year 1 =

Dear
:

This letter responds to a letter dated June 22, 2001, and additional correspondence, submitted on behalf of X by X’s authorized representative, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated on D1 of Year 1. A and B are the shareholders of X. A, the president of X, represents that it was always intended for X to be an S corporation. However, according to the Service Center, no timely completed Form 2553, Election by a Small Business Corporation, was filed on behalf of X for Year 1.

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.

-2-
PLR-135420-01

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 corporation for X’s first 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 sent to X’s authorized representative.

Sincerely yours,
Matthew Lay
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