PLR 200202039: Late S corporation election accepted after advisor filing lapse

Plain-English summary

A corporation's sole shareholder intended S corporation treatment from the company's formation and relied on tax advisors to file Form 2553. The election was not filed on time. The IRS found reasonable cause for the failure and granted relief under section 1362(b)(5). An election effective from formation would be treated as timely if the company filed a completed Form 2553 within 60 days of the letter. The IRS expressly declined to decide whether the company was an S corporation for federal tax purposes apart from that filing relief.

Ruling snapshot

• Question: Could the company obtain relief for its late S corporation election?
• Outcome: Approved: the election is timely 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: 200202039
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-104676-01
Date:
October 5, 2001

LEGEND

X
=

A
=

D1
=

State =

Dear

This letter responds to your letter dated January 15, 2001, submitted on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

FACTS

X was incorporated under State law on D1, and A decided that X would be an S corporation. A, the sole shareholder of X, relied on tax advisors to file X's Form 2553, Election by a Small Business Corporation, with an effective date of D1. The Form 2553, however, was not filed timely.

A requests a ruling that X will be recognized as an S corporation effective for the taxable year beginning D1 under § 1362(b)(5).

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 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
PLR-104676-01
2
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 A has established reasonable cause for X failing to make a timely 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.

Sincerely,
Christine Ellison
Chief, Branch 3
Office of Associate Chief Counsel
Passthroughs and Special Industries

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