PLR 200204009: Late S election may take effect from incorporation

Plain-English summary

A corporation with two shareholders intended to be an S corporation from its incorporation date but discovered that its election had not been filed on time. The IRS found reasonable cause for the late filing and ruled that the election would be treated as timely for the taxable year beginning on that date. The ruling required the corporation to file Form 2553 effective from incorporation within 60 days and attach a copy of the letter. The IRS did not decide whether the corporation otherwise qualified for S corporation treatment.

Ruling snapshot

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

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200204009
Washington, DC 20224
Release Date: 1/25/2002
Index Number: U.I.L. No.: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-135673-01
Date:
October 18, 2001

Legend

Company
=

State
=

Shareholders =

a
=

Dear

This letter responds to a letter dated May 23, 2001, and subsequent correspondence, requesting a ruling on behalf of Company under § 1362(b)(5) of the Internal Revenue Code.

The information submitted discloses that Company was incorporated on a in State. Company has two shareholders, Shareholders. It is represented that Company has intended to be an S corporation since a. However, Company discovered that its S election had not been timely filed.

Company requests a ruling under § 1362(b)(5) that its § 1362(a) election will be treated as timely made for its taxable year that began on a.

Section 1362(a) provides that a small business corporation may elect to be an S corporation.

Section 1362(b) provides when an S election will be effective. Generally, if an S election is made within the first two and one half months of a corporation's taxable year, then that corporation will be treated as an S corporation for the year in which the election is made. Section 1362(b)(3) provides that 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 following the year in which the S election is made.

PLR-135673-01
2

Section 1362(b)(5) provides that if no § 1362(a) election is made for any taxable year, and the Secretary determines that there was reasonable cause for the failure to timely make such election, then the Secretary may treat such an election as timely made for such taxable year and § 1362(b)(3) shall not apply.

Based on the facts submitted and representations made, we conclude that Company has established reasonable cause for failing to make a timely S election for its taxable year that began on a Accordingly we conclude that Company's § 1362(a) election will be treated as timely made for its taxable year that began on a. However, this ruling is contingent on Company filing Form 2553, Election by a Small Business Corporation, with an effective date of a, with the appropriate Service Center within 60 days from the date of this ruling. A copy of this letter should be attached to the Form 2553.

Except as specifically set forth above, we express or imply no opinion concerning the federal tax consequences of the foregoing facts. Specifically, we express or imply no opinion on whether Company otherwise qualifies as an S corporation.

Pursuant to a power of attorney on file with this office, a copy of this letter is being sent to Company’s authorized representative.

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

Sincerely yours,
JEANNE SULLIVAN
Senior Technician Reviewer,
Branch 3
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosure:
Copy for section 6110 purposes