PLR 200211013: S election relief for the corporation's first operating year

Plain-English summary

A corporation intended S corporation treatment beginning in the year after incorporation, when it planned to start operations. It filed an S corporation return for that year but had not timely filed Form 2553. The IRS found reasonable cause for the missed election under section 1362(b)(5). A completed Form 2553 filed within 60 days of the letter, effective for that year, would be treated as timely. The IRS did not determine whether the corporation otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Could a missed S election take effect for the corporation's first operating year?
• Outcome: Approved, if Form 2553 is filed within 60 days for that year.
• Key authorities: IRC §§ 1362(b)(5), 1361(b).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200211013
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-143042-01
Date:
December 6, 2001

LEGEND

X
=

A
=

Date 1
=

Year 1
=

Year 2
=

Dear

This letter responds to your letter, dated June 15, 2001, requesting a ruling under section 1362(b)(5) of the Internal Revenue Code.

FACTS

The information submitted states that X was incorporated on Date 1 in Year 1.
A, as the president and sole shareholder of X, represents that X was intended to be treated as an S corporation for federal tax purposes as of Year 2, the year operations were to begin. X filed a Form 1120S, U.S. Income Tax Return for an S Corporation, for its Year 2 taxable year. However, no Form 2553, Election by a Small Business Corporation, was timely filed with the Internal Revenue Service.

LAW AND ANALYSIS

Section 1362(b)(5) of the Code provides that if -- (A) an election under section 1362(a) is made for any taxable year after the date prescribed by section 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.

CONCLUSION

2
PLR-143042-01

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 Year 2 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 2 taxable year, within 60 days following the date of this letter, then such election will be treated as timely made for X’s Year 2 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 section 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.

In accordance with the power of attorney on file with this office, a copy of this letter is being sent to X’s authorized representative.

Sincerely,
Jeanne M. Sullivan
Senior Technician Reviewer, Branch 3
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

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