PLR 200206004: Company receives late S election relief for first tax year

Plain-English summary

Two shareholders intended their newly formed company to be an S corporation from its first tax year, but the company did not timely file Form 2553. Its attorney provided an affidavit and a letter sent shortly after incorporation about the need to make the election. The IRS found reasonable cause for the failure and ruled that the election would be treated as timely if the company filed a completed Form 2553 within 60 days of the ruling, effective for the first year. A copy of the ruling had to be attached, and the IRS did not decide whether the company otherwise qualified as a small business corporation.

Ruling snapshot

• Question: May the company's late S election be treated as timely for its first tax year?
• Outcome: Approved conditionally, with 60 days to file Form 2553.
• Key authorities: IRC §§ 1361(b), 1362(a), 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200206004
Washington, DC 20224
Release Date: 2/8/2002
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2-PLR-137098-01
Date:
October 26, 2001

Legend

X:

A:

B:

D1:

D2:

Year 1:

Dear :

This responds to your representative’s letter dated June 26, 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. A and B, the shareholders of X on D1, intended X to be an S corporation effective
   for the Year 1 taxable year. This intent is evidenced by affidavit from X’s attorney. X’s attorney has also submitted a letter the attorney sent to X on the day after X incorporated regarding the need to file the S election. However, a Form 2553, Election by a Small Business Corporation, was not timely filed for X’s 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 2 PLR-137098-01

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 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,
Matthew Lay
Senior Technician Reviewer, Branch 2
Associate Chief Counsel
(Passthroughs and Special Industries)
Enclosures (2)
Copy of this letter
Copy for § 6110 purposes