PLR 200215039: Late S election receives reasonable cause relief

Plain-English summary

A corporation's shareholders wanted S corporation treatment from a specified date, but the election was not filed on time. The IRS found reasonable cause for the delay and ruled that the corporation would be treated as an S corporation from the intended date, provided it otherwise qualifies. The corporation was instructed to submit a completed Form 2553 with a copy of the ruling within 60 days. The letter did not independently decide whether the corporation met all S corporation requirements.

Ruling snapshot

• Question: Can the corporation's S election take effect from its intended date despite the missed filing deadline?
• Outcome: Approved under IRC § 1362(b)(5), subject to the stated conditions
• Key authorities: IRC § 1362(a), (b)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200215039
Washington, DC 20224
Release Date: 4/12/2002
Index Number: 1362.02-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:Br.1-PLR-166768-01
Date:
January 14, 2002

X =

State =

D1 =

D2 =

Dear

This responds to a letter dated December 5, 2001, submitted on behalf of X, requesting relief under section 1362(b)(5) of the Internal Revenue Code.

FACTS

X was incorporated on D1 under the laws of State. The shareholders of X desired that X elect S corporation treatment effective on D2, but the election to be treated as an S corporation was not timely filed. Accordingly, X requests a ruling that it will be treated as an S corporation effective D2.

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.

Section 1362(b)(2) provides in relevant part that 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. Under section 1362(b)(3), however, 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 filed.

Section 1362(b)(5) provides that if: (1) no section 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 such election, then the Secretary may treat such an election as timely made for such taxable year and section 1362(b)(3) shall not apply.
2
PLR-166768-01

X did not file an election to be treated as an S corporation under section 1362(a).
X has, however, established reasonable cause for not making a timely S election and is entitled to relief under section 1362(b)(5).

CONCLUSION

Based solely on the facts submitted and the representations made, and provided that X otherwise qualifies as an S corporation, we conclude that X will be treated as an S corporation effective D2. Within 60 days from the date of this letter, X should submit a properly completed Form 2553, with a copy of this letter attached, to the relevant service center.

Except as specifically set forth above, no opinion is expressed or implied as to the federal income tax consequences of the transaction described above under any other provision of the Code. Specifically, no opinion is expressed concerning whether X is, in fact, an S corporation for federal tax purposes.

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 the taxpayer.

Sincerely,
David R. Haglund
Senior Technician Reviewer, Branch 1
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

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

cc: