PLR 200211012: S election treated as timely from start of business

Plain-English summary

A corporation filed Forms 2553 and reported as an S corporation, but its election was not timely for the year it began business. It asked the IRS to treat the election as timely under section 1362(b)(5). The IRS found reasonable cause for the late election and ruled that it would be effective from the start of that tax year if the corporation filed Form 2553 with that effective date within 60 days of the letter. The IRS did not rule on whether the corporation otherwise qualified for S status.

Ruling snapshot

• Question: Could the corporation's late S election take effect for the taxable year it began business?
• Outcome: Approved, contingent on filing Form 2553 within 60 days.
• Key authorities: IRC § 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200211012
Washington, DC 20224
Release Date: 3/15/2002
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-140676-01
Date:
December 5, 2001

Legend

X
=

A
=

State
=

D1
=

D2
=

D3
=

D4
=

Dear

This letter responds to your request dated July 24, 2001, and subsequent submissions submitted on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

FACTS

X was incorporated in State on D1 and began doing business on D4. The sole shareholder of X is A. X represents that, on D2 and D3, it filed a Form 2553, Election by a Small Business Corporation, to elect S Corporation status. However, X’s Form 2553 was not filed timely. X filed its Federal income tax return as a S corporation.

X requests a ruling under § 1362(b)(5) that its § 1362(a) election will be treated as timely made for its taxable year that begins on D4.

LAW AND ANALYSIS

Section 1362(a) generally provides that a small business corporation may elect to be an S corporation.

PLR-140676-01
2

Section 1362(b) provides 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 that corporation will be treated as an S corporation beginning the year in which the election is made.

Section 1362(b)(3) provides that if an S election is made after the first two and one half months of a corporation’s taxable year, then that 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.

CONCLUSIONS

Based upon 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, X’s S corporation election will be treated as timely made for its taxable year that begins on D4. This ruling is contingent on X filing Form 2553, Election by a Small Business Corporation, with an effective date of D4, with the appropriate Service Center within 60 days from the date of this ruling. A copy of this letter should be attached to the Form 2553 filed with the Service Center.

Except as specifically set forth above, we express or imply no opinion concerning the federal tax consequences of the facts described above under any other provision of the Code. Specifically, we express or imply no opinion concerning whether X otherwise qualifies as 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.

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