PLR 200206035: Consistent S corporation returns support late election relief

Plain-English summary

A corporation intended S corporation status from its incorporation date but did not file Form 2553 on time. It did file S corporation returns for its first two tax years, and its shareholders filed personal returns consistent with that status. The IRS found reasonable cause for the missed election deadline under IRC § 1362(b)(5). It ruled that the election would be treated as timely from the first tax year if the corporation filed Form 2553 within 60 days of the letter. The IRS did not decide whether the corporation otherwise qualified for S status.

Ruling snapshot

• Question: Could the corporation's late S election be effective for its first tax year?
• Outcome: Approved, contingent on filing Form 2553 within 60 days.
• Key authorities: IRC § 1362(a), (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200206035
Washington, DC 20224
Release Date: 2/8/2002
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-139858-01
Date:
November 8, 2001

Company:
Shareholders:
Date:

Dear

This letter responds to a letter from your authorized representative dated July 19, 2001, as well as subsequent correspondence, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code regarding Company's late S corporation election.

FACTS

Company, owned by the Shareholders, was incorporated in State on Date.
Company represents that it intended to be an S corporation from inception; however, Form 2553 (Election by a Small Business Corporation) was not timely filed with the Internal Revenue Service. Company timely filed Forms 1120S (U.S. Income Tax Return for an S Corporation) for its first two tax years, and the Shareholders filed their individual income tax returns for these same years consistent with Company’s intended status as an S corporation .

LAW AND ANALYSIS

Section 1362(b)(1) provides that, in general, that an election by a small business corporation under § 1362(a) to be an S corporation may be made for any tax year–

(A) at any time during the preceding tax year, or

(B) at any time during the tax year and on or before the 15th day of the 3d month of the tax year.

Section 1362(b)(3) provides that if--

(A) a small business corporation makes an election under § 1362(a) for any tax year, and

(B) that election is made after the 15th day of the 3d month of the tax year and on or before the 15th day of the 3d month of the following tax year, 2
PLR-139858-01

then that election shall be treated as made for the following tax year.

Section 1362(b)(5) provides that if--

(A) an election under § 1362(a) is made for any tax year (determined without regard to § 1362(b)(3)) after the date prescribed by this subsection for making the election for that tax year or no such election is made for any tax year, and

(B) the Secretary determines that there was reasonable cause for the failure to timely make the election,

the Secretary may treat such election as timely made for that tax year (and
§ 1362(b)(3) shall not apply).

Based solely on the facts and representations submitted by Company, we conclude that there was reasonable cause for Company’s failure to make a timely S corporation election. Therefore, we conclude that Company's late election under § 1362(a) is to be treated under § 1362(b)(5) as filed timely for its tax year beginning Date. This ruling is contingent, however, on Company filing Form 2553, to be effective on Date, with the appropriate service center no later than 60 days from the date of this letter. A copy of this letter should be attached to the Form 2553.

Except for the specific ruling above, we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the Code. Specifically, we express or imply no opinion on whether Company otherwise is eligible to be an S corporation.

Under a power of attorney on file with this office, we are sending the original of this letter to you and a copy to the taxpayer.

This ruling is directed only to the taxpayer who requested it. According to § 6110(k)(3), this ruling may not be used or cited as precedent.

Sincerely,
JEANNE E. SULLIVAN
Senior Technician Reviewer, Branch 3
Office of Associate Chief Counsel
(Passthroughs and Special Industries) enclosure: copy of this letter copy for § 6110 purposes