PLR 200215033: Late S corporation election allowed after timely filing

Plain-English summary

A corporation's sole shareholder intended S corporation treatment from its first taxable year and reported income that way, but the corporation did not file a timely S election. The IRS found reasonable cause for the late election under § 1362(b)(5). It ruled that the election would be treated as timely if the corporation filed a completed Form 2553 within 60 days of the letter. The ruling did not decide whether the corporation otherwise qualifies as a small business corporation under § 1361(b).

Ruling snapshot

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

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200215033
Washington, DC 20224
Release Date: 4/12/2002
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2-PLR-147999-01
Date:
January 11, 2002

Legend

A
=

X
=

Date 1 =

Year 1 =

Dear

This responds to a letter dated September 10, 2001, submitted by A, X’s president and sole shareholder, on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated on Date 1. A represents that A intended for X to be an S corporation, effective on Date 1. X filed a Form 1120S, U.S. Income Tax Return for an S Corporation, for X’s Year 1 taxable year. Additionally, A has consistently reported income as if X was an S corporation. However, no timely Form 2553, Election to be a Small Business Corporation, was 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 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

PLR-147999-01
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be an S corporation by filing a completed Form 2553 with the appropriate service center effective for its taxable year begining on Year 1 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 ruled upon above, no opinion is expressed concerning the federal tax consequences of the facts described above under any other provisions of the Code, including whether X was or is a small business corporation under § 1361(b).

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.

Pursuant to 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
Chief, Branch 2
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

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