PLR 200208021: Late S corporation election granted conditional relief

Plain-English summary

A corporation's shareholders intended to elect S corporation status from its incorporation date. A founding shareholder relied on an attorney to file Form 2553, but it was late. The IRS found reasonable cause under section 1362(b)(5) and said the election would be treated as timely if the corporation filed a completed form within 60 days of the ruling, using the intended effective date. The letter expressly does not decide whether the corporation otherwise qualifies as an S corporation.

Ruling snapshot

• Question: Can the corporation's late S election take effect from its intended date?
• Outcome: Approved if a completed Form 2553 is filed within 60 days of the ruling.
• Key authorities: IRC § 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Number: 200208021 Washington, DC 20224
Release Date: 2/22/2002
Index Number: 1362.01-03 Person to Contact:

Telephone Number:

Refer Reply To:
PLR-130503-01 CC:PSI:Br3
Date:
November 28, 2001

LEGEND

X
=

A
=

Shareholders =

D1
=

State
=

PLR-130503-01
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Dear

This letter responds to a letter, dated June 1, 2001, and subsequent correspondence by your authorized representative on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

FACTS

X was incorporated under State law on D1, and X's shareholders intended to elect S corporation status for X. A, a founding shareholder of X, relied on an attorney to file X's Form 2553, Election by a Small Business Corporation, with an effective date of D1. The Form 2553, however, was not filed timely.

X and its Shareholders request a ruling that X will be recognized as an S corporation effective for the taxable year beginning D1 under § 1362(b)(5).

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. Generally, 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. If an S election is made after the first two and one-half months of a corporation's taxable year, then the corporation will not be treated as an S corporation until the taxable year after the year in which the S election is made.

Section 1362(b)(5) provides that if (1) an election under § 1362(a) is made for any taxable year after the date prescribed by § 1362 for making the election or 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 the election, then the Secretary may treat the election as timely made for such taxable year.

CONCLUSION

Based on the facts submitted and representations made, we conclude that X has established reasonable cause for not making a timely election and is eligible for relief under § 1362(b)(5). Accordingly, if X makes an election to be an S corporation by filing with the appropriate Service Center a completed Form 2553, containing an effective date of D1 for the election, within 60 days following the date of this letter, then such election will be treated as timely made. A copy of this letter should be attached to the Form 2553 filed with the Service Center.

Except as expressly provided herein, we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter. Specifically, we express or imply no opinion concerning

PLR-130503-01
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whether X is an S corporation for federal tax purposes.

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

Under a power of attorney on file with this office, we are sending a copy of this letter to your authorized representative.

Sincerely,
Christine Ellison
Chief, Branch 3
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

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