PLR 200202031: Late S corporation election treated as timely with new Form 2553

Plain-English summary

A company with one shareholder intended to elect S corporation status for a tax year but did not file Form 2553 by the deadline. Its S corporation return for that year was on extension. The IRS found reasonable cause for the missed election and ruled that it would be treated as timely under section 1362(b)(5). The company had to file Form 2553 with the intended effective date within 60 days of the letter. The IRS did not decide whether the company otherwise qualified for S corporation status.

Ruling snapshot

• Question: Could the company receive relief for its late S corporation election?
• Outcome: Approved: timely treatment if Form 2553 is filed within 60 days.
• Key authorities: IRC § 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200202031
Washington, DC 20224
Release Date: 1/11/2002
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-130843-01
Date:
October 2, 2001

Company:
State:
Shareholder: a: b:

Dear

This letter responds to a letter dated May 31, 2001, from your authorized representative, submitted on behalf of Company, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code regarding Company's late S corporation election.

FACTS

Company was incorporated in State on a. Shareholder is the sole owner of Company. Company represents that it intended to be an S corporation effective b; however, Form 2553 (Election by a Small Business Corporation) was not timely filed with the Internal Revenue Service. Company’s Form 1120S (U.S. Income Tax Return for an S Corporation) for its tax year beginning b is on extension.

LAW AND ANALYSIS

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

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

(B) at any time during the taxable year and on or before the 15th day of the 3d month of the taxable year.

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

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

(B) that election is made after the 15th day of the 3d month of the taxable year and on or before the 15th day of the 3d month of the following taxable year, 2
PLR-130843-01

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

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

(A) an election under § 1362(a) is made for any taxable year (determined without regard to § 1362(b)(3)) after the date prescribed by this subsection for making the election for that 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 the election,

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

Based solely on the facts and representations submitted by Company, we conclude that there was reasonable cause for Company’s failure to make a timely S corporation election. Therefore, we conclude that Company's late election under § 1362(a) is to be treated under § 1362(b)(5) as filed timely for its tax year beginning b. This ruling is contingent, however, on Company filing Form 2553, to be effective on b, 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, we express or imply no opinion concerning the federal income tax consequences of the facts of this case under any other provision of the Code. Specifically, we express or imply no opinion 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,
JEANNE E. SULLIVAN
Senior Technician Reviewer, Branch 3
Office of Associate Chief Counsel
(Passthroughs and Special Industries)

enclosure: copy of this letter copy for § 6110 purposes