PLR 200217028: Late S corporation election granted reasonable-cause relief

Plain-English summary

A corporation's shareholders intended for it to be treated as an S corporation beginning on a specified date, but its S election was not timely filed. The IRS found reasonable cause for the late election and granted relief under IRC § 1362(b)(5). The corporation will be treated as an S corporation from the specified date if it otherwise qualifies and submits a completed Form 2553 with the ruling attached within 60 days of the letter. The ruling does not decide other tax consequences.

Ruling snapshot

• Question: May the corporation's late S election take effect on the intended date?
• Outcome: Approved: the election receives reasonable-cause relief, subject to filing Form 2553 within 60 days and otherwise qualifying.
• Key authorities: IRC § 1362(a), (b), (b)(2), (b)(3), and (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200217028
Washington, DC 20224
Release Date: 4/26/2002
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:B1-PLR-164347-01
Date:
Jan 16 2002

Legend

X =

D1 =
D2 =

Dear

This responds to your letter dated, November 2, 2001 in which you requested relief under § 1362(b)(5) of the Internal Revenue Code.

Facts

X was incorporated on D1. The shareholders of X intended it to be treated as an S corporation effective on D2. However, the election to be treated as an S corporation was not timely filed.

Law and Analysis

Section 1362(a) allows a small business corporation to elect to be treated as an S corporation.

Section 1362(b) provides the rules as to when such an election will become effective. Section 1362(b)(2) states 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 § 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 (1) if no election is made pursuant to section 1362(a), or if the election is made after the date prescribed for making such an election, and (2) the Secretary determines that there was reasonable cause for the failure to timely make the election, then the Secretary may treat such an election as timely made
CC:PSI:B1-PLR-164347-01
2

for such taxable year and effective as of the first day of that year.

X did not timely file an election to be treated as an S corporation under § 1362(a). X has, however, established reasonable cause for not making a timely S election and is entitled to relief under § 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 the letter, X should submit a properly completed Form 2553, with a copy of this letter attached, to the relevant service center.

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Internal Revenue Code provides that it may not be used or cited as precedent.

Pursuant to Power of Attorney on file with this office, a copy of this letter is being sent to your authorized tax representative.

Sincerely,
Dianna K. Miosi
Chief, Branch 1
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures (2)
Copy of this letter