PLR 200217014: Relief granted for an S corporation election that was never filed

Plain-English summary

A corporation's shareholders intended it to be taxed as an S corporation, but the corporation never filed Form 2553. The IRS found reasonable cause for the failure to make a timely election under IRC § 1362(b)(5). It ruled that an election effective on the corporation's incorporation date would be treated as timely if the corporation filed the completed form with a copy of the ruling within the period specified in the letter. The IRS did not decide whether the corporation otherwise qualified as an S corporation.

Ruling snapshot

• Question: Can an S corporation election that was never filed be treated as timely made?
• Outcome: Approved, subject to filing Form 2553 as directed
• Key authorities: IRC § 1362(a), (b), and (b)(5)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200217014
Washington, DC 20224
Release Date: 4/26/2002
Index Number: 1362.00-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3-PLR-149791-01
Date:
January 16, 2002

Legend

Corporation =

Shareholders =

Date 1
=

Dear

This letter responds to a letter dated September 13, 2001, and subsequent correspondence, requesting a ruling under section 1362(b)(5) of the Internal Revenue Code.

Facts

Corporation was incorporated on Date 1. Shareholders intended Corporation to be taxed as an S corporation for federal tax purposes, however, a Form 2553, Election by a Small Business Corporation, was never filed by Corporation.

Applicable Law

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

Section 1362(b) governs the timeliness of such an election as well as its effective date. Generally, if an election to be treated as an S corporation is made within the first two and one-half months of a corporation’s taxable year, then the corporation will be 2 PLR- 149791-01

treated as an S corporation beginning in the year in which the election was made. If the election is made after the first two and one-half months of a corporation’s taxable year, then the corporation will not be treated as having made an effective election to be treated as an S corporation for federal tax purposes until the following taxable year.

Section 1362(b)(5) provides that if an election to be treated as an S corporation for federal tax purposes is either made untimely, pursuant to section 1362(b), or not made at all, and the Secretary determines that there was reasonable cause for the failure to make a timely election, then the Secretary may treat the corporation as having made a timely election.

Conclusion

Based on the facts submitted and representations made, we conclude that Corporation has established reasonable cause for failing to make a timely election to be an S corporation. Accordingly, provided Corporation makes an election to be treated as an S corporation for federal tax purposes by filing a completed Form 2553 effective Date 1 with the appropriate Service Center within 60 following the date of this letter, then such election will be treated as timely made. A copy of this letter should be attached to the Form 2553 and is enclosed for that purpose.

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 Internal Revenue Code. Specifically, we express or imply no opinion concerning whether Corporation is 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 yours,
Jeanne M. Sullivan
Senior Technician Reviewer
Branch 3
Office of Associate Chief Counsel
(Passthroughs and Special Industries)

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