PLR 200205012: Sole shareholder's corporation receives late S election relief

Plain-English summary

The sole shareholder of a newly incorporated business intended to elect S corporation treatment from the business's first tax year, but the election was not made on time. The IRS found reasonable cause for the failure under IRC § 1362(b)(5). It agreed to treat the election as timely if the corporation filed Form 2553 within 60 days of the ruling. The IRS did not decide whether the corporation otherwise met the requirements for S corporation status.

Ruling snapshot

• Question: Can the corporation's late S election be effective 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: 200205012
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-138711-01
Date:
October 24, 2001

X
=

A
=

D1 =

Year 1 =

Dear
:

This responds to a letter dated July 10, 2001, 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. The sole shareholder of X is A. A, X’s president, represents that it was A’s intent to have X elect to be an S corporation.

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 effective for X’s taxable year beginning D1 of Year 1. Accordingly, provided that X makes an election to be an S corporation by filing a Form 2553 with the 2
PLR-138711-01

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 ruled upon above, no opinion is expressed concerning the federal tax consequences of the facts described above under any other provisions 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 the power of attorney on file with this office, a copy of this letter is being sent to X’s authorized representative.

Sincerely,
J. THOMAS HINES
Chief, Branch 2
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures (2)
Copy of this letter