PLR 200203063: Corporation may make a late S election for its first tax year

Plain-English summary

A corporation's sole shareholder intended S corporation status for its first tax year but missed the Form 2553 deadline. The company filed an S corporation return, and its directors' meeting minutes documented the intended election. The IRS found reasonable cause for the late filing and ruled that a completed election would be treated as timely for that first year if filed within 60 days of the letter, with a copy attached. The IRS did not determine whether the corporation met the small business corporation requirements under section 1361(b).

Ruling snapshot

• Question: Could a late S corporation election be effective for the corporation's first tax year?
• Outcome: Approved, contingent on filing Form 2553 within 60 days.
• Key authorities: IRC §§ 1362(a), 1362(b)(5), 1361(b).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200203063
Washington, DC 20224
Release Date: 1/18/2002
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2 - PLR-137254-01
Date:
October 23, 2001

X
=

A
=

D1
=

Year 1 =

Dear
:

This letter responds to your letter, dated July 2, 2001, and subsequent correspondence, submitted on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated on D1 in Year 1. A, as the sole shareholder and president of X, represents that X was intended to be an S corporation beginning Year 1, its first taxable year. The minutes of the regular meeting of the directors of X evidences this intent. However, no Form 2553, Election by a Small Business Corporation, was filed with the Internal Revenue Service. For Year 1 X filed a Form 1120S, U.S. Income Tax Return for an S Corporation.

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.

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 Year 1 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

PLR-137254-01
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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 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 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