PLR 200222015: Late S election permitted after C corporation years

Plain-English summary

A corporation began as a C corporation, then its shareholders intended to elect S status for a later tax year. The corporation filed S corporation returns from that later year but did not timely file Form 2553. The IRS found reasonable cause for the missed election and ruled that it would be treated as timely for the requested year if a completed Form 2553 was filed within 60 days of the ruling. The IRS did not decide whether the corporation otherwise qualified as a small business corporation under section 1361(b).

Ruling snapshot

• Question: Could a missed Form 2553 filing be cured for the corporation's intended first S corporation tax year?
• Outcome: Approved, subject to filing Form 2553 within 60 days.
• Key authorities: IRC §§ 1361(b), 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200222015
Washington, DC 20224
Release Date: 5/31/2002
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2-PLR-167261-01
Date:
February 27, 2002

Legend

X
=

D1
=

Year 1
=

D2
=

Year 2
=

Dear
:

This responds to a letter dated November 30, 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 as a C corporation on D1 of Year 1. The shareholders of X intended for X to become an S corporation effective D2 of Year 2. X has filed Form 1120S, U.S. Income Tax Return for an S Corporation, for X’s taxable years beginning in Year 2. However, no timely Form 2553, Election to be a Small Business Corporation, was 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 effective for its Year 2 taxable year within 60 days following the date of this letter, then such election will be treated as timely made for X’s Year 2 taxable year. A copy of this

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PLR-167261-01

letter should be attached to the Form 2553.

Except as specifically ruled upon above, no opinion is expressed concerning the federal tax consequences of the facts described above under any other provisions of the Code, including whether X was or is a small business corporation under § 1361(b).

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

Pursuant to a power of attorney on file with this office, a copy of this letter is being sent to X’s authorized representative.

Sincerely yours,
Matthew Lay
Senior Technician Reviewer, Branch 2
Associate Chief Counsel
(Passthroughs and Special Industries)