PLR 200151026: Late S corporation election received effective date relief

Plain-English summary

A company missed the deadline for its intended S corporation election. The facts section says its shareholders wanted the election effective on D2, while the conclusion grants treatment effective on D1, so the intended effective date is unclear in the IRS text. The IRS found reasonable cause for the late election under section 1362(b)(5). It ruled that the company would be treated as an S corporation from D1 if it otherwise qualified. The company was directed to submit a completed Form 2553 with the ruling letter within 60 days. The relief applied only if the company otherwise qualified as an S corporation.

Ruling snapshot

• Question: Could the company receive relief for its late S corporation election?
• Outcome: Approved: late election relief was granted, subject to otherwise qualifying as an S corporation.
• Key authorities: IRC § 1362(a), (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200151026
Washington, DC 20224
Release Date: 12/21/2001
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:BO1-PLR-144276-01
Date:
September 20, 2001

Legend

X =

D1 =

D2 =

This responds to your letter dated, August 16, 2001 in which you requested relief under § 1362(b)(5) of the Internal Revenue Code.

Facts

X was incorporated on D1. The shareholders of X intended it be treated as an S corporation effective on D2. However, the election to be treated as an S corporation was not timely filed.

Law and Analysis

Section 1362(a) allows a small business corporation to elect to be treated as an S corporation.

Section 1362(b) provides the rules as to when such an election will become effective. Section 1362(b)(2) states in relevant part that 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. Under § 1362(b)(3), however, 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 filed.

Section 1362 (b)(5) provides that (1) if no election is made pursuant to section 1362(a), or if the election is made after the date prescribed for making such an election, and (2) the Secretary determines that there was reasonable cause for the failure to timely make the election, then the Secretary may treat such an election as timely made for such taxable year and effective as of the first day of that year.

CC:PSI:B01-PLR-144276-01
2

X did not timely file an election to be treated as an S corporation under § 1362(a). X has, however, established reasonable cause for not making a timely S election and is entitled to relief under § 1362(b)(5).

Conclusion

Based solely on the facts submitted and the representations made, and provided that X otherwise qualifies as an S corporation, we conclude that X will be treated as an S corporation effective D1. Within 60 days from the date of the letter, X should submit a properly completed Form 2553, with a copy of this letter attached, to the relevant service center.

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter.

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

In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your tax representative.

Sincerely,
Dianna K. Miosi
Chief, Branch 1
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures (2)