PLR 200217049: Late S corporation election accepted with timely Form 2553 filing

Plain-English summary

A corporation's shareholders intended it to be treated as an S corporation from its incorporation date, but Form 2553 was filed late. The IRS found reasonable cause for the missed deadline and granted relief under IRC § 1362(b)(5). If the corporation submits a completed Form 2553 within 60 days of the letter, showing its incorporation date as the effective date, the election will be treated as timely. The IRS did not determine whether the corporation otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Can a late S corporation election take effect on the corporation's incorporation date?
• Outcome: Approved, if the corporation files the specified Form 2553 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: 200217049
Washington, DC 20224
Release Date: 4/26/2002
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3-PLR-153576-01
Date:
January 24, 2002

LEGEND

X
=

Shareholders =

=

Date 1
=

State
=

Dear :

This letter responds to a letter from X, dated September 20, 2001, requesting a ruling under section 1362(b)(5) of the Internal Revenue Code.

FACTS

The information submitted states that X was incorporated in State on Date 1. X’s Shareholders represent that they intended for X to be treated as an S corporation for federal tax purposes as of Date 1. However, a Form 2553, Election by a Small Business Corporation, was not filed timely with the Internal Revenue Service.

LAW

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. 2 PLR-153576-01

Section 1362(b)(5) provides that if (1) an election under section 1362(a) is made for any taxable year after the date prescribed by section 1362 for making the election or no section 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 on the facts submitted and the representations made, we conclude that X has established reasonable cause for failing to make a timely election to be an S corporation and is eligible for relief under section 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 Date 1, 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.

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 Code, including whether X was or is a small business corporation under section 1361(b) of the Code.

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

Sincerely,
Christine Ellison
Chief, Branch 3
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures (2)
Copy of this letter
Copy for § 6110 purposes