PLR 200227037: Late S corporation election receives relief

Plain-English summary

A corporation's shareholder intended S corporation treatment from the date the company was incorporated, but Form 2553 was not filed on time. The IRS found reasonable cause for the late filing under section 1362(b)(5). It ruled that the election would be treated as timely if the corporation filed a completed Form 2553 with the stated effective date within 60 days of the letter and attached a copy of the letter. The IRS did not decide whether the corporation otherwise qualified as an S corporation.

Ruling snapshot

• Question: Can the corporation's late S corporation election be treated as timely for the year it began business?
• Outcome: Approved, conditioned on filing Form 2553 within 60 days
• Key authorities: IRC §§ 1362(a), 1362(b)(3), 1362(b)(5)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200227037
Washington, DC 20224
Release Date: 7/5/2002
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-114608-02
Date:
April 10, 2002

LEGEND

X
=

Shareholder =

Date 1
=

State
=

:

This letter responds to your letter on behalf of X, dated March 4, 2002, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

FACTS

The information submitted states that X was incorporated in State on Date 1. X’s Shareholder represents that he 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.

X requests a ruling under § 1362(b)(5) that its § 1362(a) election will be treated as timely made for its taxable year that began on Date 1.

LAW

Section 1362(a) provides that a small business corporation may elect to be an S corporation.

Section 1362(b) provides when an S election will be effective. Generally, if an S 2
PLR-114608-02

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.

Section 1362(b)(3) provides that 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.

Section 1362(b)(5) provides that if (1) an election under § 1362(a) is made for any taxable year after the date prescribed by § 1362 for making the election or no § 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 and § 1362(b)(3) shall not apply.

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 § 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. Specifically, we express or imply no opinion concerning whether X otherwise qualifies as an S corporation for federal tax purposes.

Under a power of attorney on file with this office, we are sending a copy of this letter to X and X’s authorized representative.

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,
Mary Beth Collins
Senior Technician Reviewer,
Branch 3
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)
Enclosures (2)
Copy of this letter
Copy for § 6110 purposes
cc: