PLR 200208008: Late S election for first taxable year approved

Plain-English summary

A corporation's sole shareholder and its incorporation attorney said the shareholder had always intended S corporation status, but Form 2553 was not filed on time. The IRS found reasonable cause for the late election. It ruled that an election for the corporation's first taxable year would be treated as timely if a completed Form 2553 was filed within 60 days of the ruling. The letter does not decide whether the corporation otherwise meets the small business corporation requirements of section 1361(b).

Ruling snapshot

• Question: Can the corporation's late S election be effective for its first taxable year?
• Outcome: Approved if Form 2553 is filed within 60 days of the ruling.
• Key authorities: IRC §§ 1361(b) and 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200208008
Washington, DC 20224
Release Date: 2/22/2002
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2-PLR-138745-01
Date:
November 16, 2001

Legend

X
=

A
=

B
=

D1 =

Year 1 =

Dear

This letter responds to your letter dated July 12, 2001, submitted on behalf of X as X’s authorized representative, 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 is X’s president and sole shareholder. A represents that A always intended for X to be an S corporation. An affidavit submitted by B, an attorney handling X’s incorporation, also indicated A’s intent for X to be an S corporation. However, a timely Form 2553, Election by a Small Business Corporation, was not filed.

Section 1362(b)(5) of the Code 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

2
PLR-138745-01

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 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) of the Code.

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

A copy of this letter must be attached to any income tax return to which it is relevant.

In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to the taxpayer.

Sincerely yours,
J. Thomas Hines
Branch Chief, Branch 2
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures: 2
Copy of this letter
Copy for §6110 purposes