PLR 200206013: First year S corporation election receives late filing relief

Plain-English summary

A corporation filed a Form 1120S for its first tax year but had not timely filed Form 2553 to elect S corporation status. The IRS concluded that it had reasonable cause for the missed election deadline. The election would be treated as timely for that year if the corporation filed a completed Form 2553 within 60 days of the ruling and attached a copy of the letter. The IRS did not decide whether the corporation otherwise qualified as a small business corporation under section 1361(b).

Ruling snapshot

• Question: May the corporation'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: 200206013
Washington, DC 20224
Release Date: 2/8/2002
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:B02-PLR-136386-01
Date:
October 31, 2001

X =

A =

B =

D1 =

Year 1 =

Dear
:

This responds to your letter dated June 21, 2001, written 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 are X’s shareholders. A, who is also X’s president, represents that X intended to be treated as an S corporation for federal tax purposes as of Year 1, X's first taxable year. X filed a Form 1120S, U.S. Income Tax Return for an S Corporation, for its Year 1 taxable year. However, a Form 2553, Election by a Small Business Corporation, was not filed timely for X for Year 1.

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. 2 PLR-136386-01

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 first 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 sent to X.

Sincerely yours,
J. THOMAS HINES
Chief, Branch 2
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)
Enclosures: 2
Copy of this letter
Copy for § 6110 purposes