PLR 200205011: Corporation allowed to file late S election for first tax year

Plain-English summary

A corporation's president said it was intended to be an S corporation from its first tax year. Correspondence from a former accountant showed that the president had been advised to make the election, but Form 2553 was not filed on time. The IRS found reasonable cause for the late filing under IRC § 1362(b)(5). It would treat the election as timely if the corporation submitted a completed Form 2553 within 60 days of the ruling. The IRS did not decide whether the corporation otherwise qualified for S status.

Ruling snapshot

• Question: May the corporation file a late S election for its first tax year?
• Outcome: Approved, if Form 2553 is filed within 60 days.
• Key authorities: IRC §§ 1361(b), 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200205011
Washington, DC 20224
Release Date: 2/1/2002
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2 - PLR-142270-01
Date:
October 24, 2001
X
=

A
=

Year 1 =

D1 =

Dear
:

This responds to a letter dated July 31, 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 of Year 1. A, the president of X, represents that X was intended to be an S corporation for the Year 1 taxable year. This intent is evidenced by correspondence from X’s former accountant indicating that A was advised to make an S corporation election for X. However, a Form 2553, Election by a Small Business Corporation, was not timely filed for X for its Year 1 taxable year.

Section 1362(b)(5) 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 -2-
PLR-142270-01

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 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).

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.

Pursuant to a power of attorney on file with this office, a copy of this letter is being forwarded to X.

Sincerely yours,
SHANNON COHEN
Assistant to the Branch Chief, Branch 2
Associate Chief Counsel
(Passthroughs and Special Industries)

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