PLR 200215040: S corporation election relief after filing an S return

Plain-English summary

A corporation's two shareholders intended S corporation treatment for its first tax year, and the company filed an S corporation return for that year. It did not file a timely completed Form 2553 election. The IRS found reasonable cause for the missed election and ruled that a completed Form 2553 filed within 60 days of the letter would be treated as timely for the intended year. The ruling did not decide whether the company otherwise qualified as a small business corporation.

Ruling snapshot

• Question: May the corporation's S election be treated as timely for its first tax year?
• Outcome: Approved, conditional on filing Form 2553 within 60 days
• Key authorities: IRC §§ 1361(b), 1362(b)(5)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200215040
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-164888-01
Date:
January 14, 2002
X
=

A
=

B
=

D1 =

Year 1 =

Dear
:

This letter responds to a letter dated November 8, 2001, submitted 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 D1 of Year 1. A and B are the shareholders of X. The shareholders of X intended for X to be an S corporation beginning in Year 1. X filed Form 1120S, U.S. Income Tax Return for an S corporation, for its Year 1 taxable year. However, no timely completed Form 2553, Election by a Small Business Corporation, was filed on behalf of X for Year 1.

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 Year 1 taxable year. Accordingly, provided that X makes an election -2-
PLR-164888-01

to be an S corporation by filing a completed Form 2553 with the appropriate service center effective for its Year 1 taxable year 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 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 § 1361(b) of the Code.

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.

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

Sincerely yours,
Matthew Lay
Senior Technician Reviewer
Branch 2
Associate Chief Counsel
(Passthroughs and Special Industries)

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