PLR 200217015: Late S corporation election treated as timely after advisor's failure to file

Plain-English summary

A corporation requested relief after its tax advisor failed to timely file Form 2553, the S corporation election. The corporation represented that it intended to be an S corporation from its incorporation date. The IRS concluded that the corporation had reasonable cause for the late filing and was eligible for relief under IRC § 1362(b)(5). The election would be treated as timely made if the corporation filed Form 2553 with the required effective date within 60 days of the letter.

Ruling snapshot

• Question: Can the corporation's late S corporation election be treated as timely made under IRC § 1362(b)(5)?
• Outcome: Approved
• Key authorities: IRC § 1362(a), (b), and (b)(5)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200217015
Washington, DC 20224
Release Date: 4/26/2002
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:B03-PLR-154957-01
Date:
January 16, 2002

LEGEND

X =

A =

State =

D1 =

This letter responds to your letter, dated August 24, 2001, submitted by your authorized representative on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

FACTS

According to the information submitted, X was incorporated under State law on D1, and it was decided that X would be an S corporation. A, the sole shareholder of X, relied on a tax advisor to file X's Form 2553, Election by a Small Business Corporation, with an effective date of D1. The Form 2553, however, was not filed timely.

X requests a ruling that it will be recognized as an S corporation effective for taxable year beginning D1 under § 1362(b)(5).

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. 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. If an S 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 an S corporation until the taxable year after the year in which the S election is made.
PLR-154957-01
2

Section 1362(b)(5) provides that if (1) an election under § 1362(a) is made for any taxable year after the date prescribed by § 1362 for making the election or no § 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 the election, then the Secretary may treat the election as timely made for such taxable year.

CONCLUSION

Based solely on the facts submitted and representations made, we conclude that X has established reasonable cause for its failing to make a timely election and that X is eligible for relief under § 1362(b)(5). Accordingly, if X makes an election to be an S corporation by filing with the appropriate Service Center a completed Form 2553, containing an effective date of D1 for the election, within 60 days 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 filed with the Service Center. A copy is enclosed for that purpose.

Except as expressly provided herein, we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter. Specifically, we express or imply no opinion concerning whether X is an S corporation for Federal tax purposes.

Pursuant to a power of attorney on file with this office, we are sending a copy of this letter to your authorized representative.

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,
Jeanne 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