PLR 200217041: First year S corporation election treated as timely if filed

Plain-English summary

A corporation's president and majority shareholder intended S corporation treatment from its first taxable year. A director's written action and the corporation's Form 1120S reflected that intention, but Form 2553 was not filed on time. The IRS found reasonable cause for the late election under IRC § 1362(b)(5). If the corporation files a completed Form 2553 within 60 days of the letter, effective for its first taxable year, the election will be treated as timely. The IRS did not decide whether the corporation otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Can the S corporation election be treated as timely for the corporation's first taxable year?
• Outcome: Approved for deadline relief, if Form 2553 is filed within 60 days.
• Key authorities: IRC §§ 1361(b) and 1362(a), (b), and (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200217041
Washington, DC 20224
Release Date: 4/26/2002
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2-PLR-152385-01
Date:
January 24, 2002

Legend

X
=

A
=

D1 =

Year 1 =

Dear

This responds to your letter dated September 13, 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 is X’s president and majority shareholder. A represents that A always intended for X to be an S corporation. The Written Action by Sole Director In Lieu of Organizational Meeting indicates that intention. Additionally, X filed a Form 1120S, U.S. Income Tax Return for an S Corporation, for its Year 1 taxable year which also indicates that intention. However, a timely Form 2553, Election by a Small Business Corporation, was not filed.

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 first taxable year. Accordingly, provided that X makes an election to be an S corporation by filing a completed Form 2553 with the appropriate service center
PLR-152385-01
2

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.

In accordance with the power of attorney on file with this office, a copy of this letter is being sent to X.

Sincerely yours,
J. Thomas Hines
Chief, Branch 2
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

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