PLR 200147036: Late S corporation election accepted for first tax year

Plain-English summary

A corporation intended S corporation treatment from its formation but did not file Form 2553 on time. It had filed S corporation tax returns for its first two years. The IRS found reasonable cause for the missed election deadline and ruled that the election would be treated as timely for the corporation's first tax year. The relief depended on filing Form 2553 with the requested effective date within 60 days of the letter. The IRS did not decide whether the corporation otherwise met the requirements for S status.

Ruling snapshot

• Question: Could the corporation's missed S election be effective from its first tax year?
• Outcome: Approved, contingent on filing Form 2553 within 60 days.
• Key authorities: IRC § 1362(a), (b)(1), (b)(3), (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200147036
Washington, DC 20224
Release Date: 11/23/2001
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-127191-01
Date:
August 20, 2001

Company:

State:

Shareholders:

Date:

Dear

This letter responds to a letter dated May 11, 2001, and subsequent correspondence, submitted by your authorized representative on behalf of Company, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code regarding Company's late S corporation election. Company represents the following facts.

FACTS

Company was incorporated in State on Date with Shareholders. Company represents that it intended to be an S corporation from inception, but Form 2553 (Election by a Small Business Corporation) was not timely filed. Company filed Forms 1120S (U.S. Income Tax Return for an S Corporation) for its first two tax years.

LAW AND ANALYSIS

Section 1362(b)(1) provides in general that an election by a small business corporation under § 1362(a) to be an S corporation may be made for any tax year--

(A) at any time during the preceding tax year, or

(B) at any time during the tax year and on or before the 15th day of the third month of the tax year.

Section 1362(b)(3) provides that if--

(A) a small business corporation makes an election under § 1362(a) for any tax year, and

(B) that election is made after the 15th day of the third month of the tax year and PLR-127191-01
on or before the 15th day of the third month of the following tax year,

then that election shall be treated as made for the following tax year.

Section 1362(b)(5) provides that if--

(A) an election under § 1362(a) is made for any tax year (determined without regard to § 1362(b)(3)) after the date prescribed by this subsection for making the election for that tax year or no such election is made for any tax year, and

(B) the Secretary determines that there was reasonable cause for the failure to timely make the election,

the Secretary may treat such election as timely made for that tax year (and § 1362(b)(3) shall not apply).

CONCLUSIONS

Based solely on the facts submitted and representations made, we conclude that there was reasonable cause for Company’s failure to make a timely S corporation election. Therefore, we rule that Company's late election under § 1362(a) shall be treated under § 1362(b)(5) as timely filed for its first tax year beginning Date. This ruling is contingent, however, on Company filing Form 2553, to be effective on Date, with the appropriate service center no later than 60 days from the date of this letter. A copy of this letter should be attached to the Form 2553.

Except for the specific ruling above, no opinion is expressed or implied concerning the federal income tax consequences of the facts of this case under any other provision of the Code. Specifically, no opinion is expressed or implied on whether Company otherwise is eligible to be an S corporation.

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

This ruling is directed only to the taxpayer who requested it. According to § 6110(k)(3), this ruling may not be used or cited as precedent.

Sincerely,
MARY BETH COLLINS
Senior Technician Reviewer, Branch 3
Office of Associate Chief Counsel
(Passthroughs and Special Industries)
Enclosure: copy of this letter copy for § 6110 purposes