PLR 200220021: Corporation receives late S election relief

Plain-English summary

A corporation intended to be treated as an S corporation from a specified date but failed to file its election on time. The IRS found reasonable cause for the missed deadline and granted relief under IRC § 1362(b)(5). The corporation could be recognized as an S corporation from the requested date if it otherwise qualified and filed a properly completed Form 2553 with the ruling letter within 60 days.

Ruling snapshot

• Question: Can the late S corporation election take effect on the corporation's requested date?
• Outcome: approved, subject to qualification and filing Form 2553 within 60 days
• Key authorities: IRC §§ 1362(a), 1362(b), and 1362(b)(5)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200220021
Washington, DC 20224
Release Date: 5/17/2002
Index Number: 1362.00-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:B1-PLR-100536-02
Date:
February 14, 2002

Legend:

X
=

D1
=

State =

D2
=

Dear

This responds to your letter dated December 8, 2001, submitted on behalf of X, requesting relief for an untimely subchapter S election under §1362(b)(5) of the Internal Revenue Code.

FACTS

X was incorporated on D1 under the laws of the State. X intended to be treated as an S corporation for federal tax purposes effective D2, but it failed to timely file its S election.

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 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 an S corporation until the taxable year after the year in which the S election is made.

Section 1362(b)(5) provides that if no election is made pursuant to §1362(a), or, if 2
PLR-100536-02

made, the election is made after the date prescribed for making such an election, and the Secretary determines there was reasonable cause for the failure to timely make the election, then the Secretary may treat such an election as timely made for such taxable year and effective as of the first day of that tax year.

X did not file a timely election to be treated as an S corporation under §1362(a) effective D2. X has, however, established reasonable cause for not making a timely election and is entitled to relief under §1362(b)(5).

CONCLUSION

Based solely on the facts submitted and representations made, and provided that X otherwise qualifies as a subchapter S corporation, we conclude that X will be recognized as an S corporation effective D2. Within 60 days from the date of this 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) provides that it may not be used or cited as precedent.

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

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