PLR 200205039: S election effective from incorporation despite missed filing

Plain-English summary

A corporation's shareholder intended S corporation treatment from the company's incorporation date, but no election was filed on time. The IRS found reasonable cause for the missed deadline and granted relief under section 1362(b)(5). It ruled that the corporation would be treated as an S corporation from the intended date, provided it otherwise qualified. The corporation had 60 days from the letter's date to send a completed Form 2553 and a copy of the ruling to the relevant IRS service center.

Ruling snapshot

• Question: May an unfiled S election take effect from the corporation's incorporation date?
• Outcome: Approved, subject to S corporation eligibility and a Form 2553 filing within 60 days.
• Key authorities: IRC §§ 1362(a), 1362(b)(3), 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200205039
Washington, DC 20224
Release Date: 2/1/2002
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:1-PLR-152532-01
Date:
Nov 02, 2001

Legend

X =

Date 1 =

Dear

This responds to your letter dated September 7, 2001, requesting relief under § 1362(b)(5) of the Internal Revenue Code.

Facts

X was incorporated on Date 1. The shareholder of X intended that X be treated as an S corporation effective on Date 1, but the election to be treated as an S corporation was not timely filed. Accordingly, X requests a ruling that it will be treated as an S corporation effective Date 1.

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.
Section 1362(b)(2) provides in relevant part that 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. Under
§ 1362(b)(3), however, if an S election is made after the first two and one-half months

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PLR-152532-01

of a corporation’s taxable year, then that corporation will not be treated as an S corporation until the taxable year after the year in which the S election is filed.

Section 1362(b)(5) provides that if (1) 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 such election, then the Secretary may treat such an election as timely made for such taxable year and § 1362(b)(3) shall not apply.

X did not file an election to be treated as an S corporation under § 1362(a). X has, however, established reasonable cause for not making a timely S election and is entitled to relief under § 1362(b)(5).

Conclusion

Based solely on the facts submitted and the representations made, and provided that X otherwise qualifies as an S corporation, we conclude that X will be treated as an S corporation effective Date 1. Within 60 days from the date of this letter, X should submit a properly completed Form 2553, with a copy of this letter attached, to the relevant service center.

Except as specifically set forth above, no opinion is expressed or implied as to the federal tax consequences of the transaction described above under any other provision of the Code. Specifically, no opinion is expressed concerning whether X is, in fact, an S corporation for federal tax purposes.

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

Sincerely,
/s/ Dianna K. Miosi
Dianna K. Miosi
Chief, Branch 1
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures:
Copy of this letter
Copy for § 6110 purposes