PLR 200224012: Reasonable cause permits a late S corporation election

Plain-English summary

A corporation intended to be taxed as an S corporation from its first tax year, but it did not file Form 2553 on time. Its president and its application for an employer identification number reflected that intention. The IRS found reasonable cause for the missed election under IRC § 1362(b)(5). It ruled that the election would be treated as timely if the corporation filed a completed Form 2553 within 60 days of the letter. The IRS did not decide whether the corporation otherwise qualified as a small business corporation under § 1361(b).

Ruling snapshot

• Question: May the corporation's late S election be treated as timely?
• Outcome: Approved, if Form 2553 is filed within 60 days.
• Key authorities: IRC §§ 1361(b), 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200224012
Washington, DC 20224
Release Date: 6/14/2002
Index Number: 1362.01-03
Person to Contact:

Telephone Number:
(202)622-3060
Refer Reply To:
CC:PSI:2-PLR-106402-02
Date:
March 7, 2002
Legend

X
=

A
=

Date 1 =

Date 2 =

Year 1 =

Dear . :

This letter responds to a letter dated December 28, 2001, requesting a ruling under §1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated on Date 1. A, the president of X, represents, and X’s Form SS-4, Application for Employer Identification Number indicates, that X was intended to be an S corporation beginning on Date 2. However, no timely filed Form 2553, Election by a Small Business Corporation, was filed on behalf of X for Year 1.

Section 1362(b)(5) 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. 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 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

PLR-106402-02
2

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.

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)

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