PLR 200229026: Company gets relief for a late S corporation election

Plain-English summary

A newly incorporated company intended to be an S corporation from its start but missed the deadline to file Form 2553. The company and its shareholders filed their first year tax returns consistently with S corporation treatment. The IRS found reasonable cause for the late election and agreed to treat it as timely for the company's first tax year. The company must file Form 2553 within 60 days of the letter. The ruling does not decide whether the company otherwise qualifies as an S corporation.

Ruling snapshot

• Question: May the company's late S corporation election be treated as timely?
• Outcome: Approved, contingent on filing Form 2553 within 60 days
• Key authorities: IRC § 1362(b)(5)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200229026
Washington, DC 20224
Release Date: 7/19/2002
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-102148-02
Date:
April 15, 2002

Company:
Shareholders:

State:
Date:

Dear
:

This letter responds to your letter dated October 11, 2001, as well as subsequent correspondence, requesting on behalf of Company a ruling under § 1362(b)(5) of the Internal Revenue Code regarding Company's late S corporation election.

FACTS

Company, owned by the Shareholders, was incorporated in State on Date.
Company represents that it intended to be an S corporation from inception; however, Form 2553 (Election by a Small Business Corporation) was not filed timely with the Internal Revenue Service. Company filed Form 1120S (U.S. Income Tax Return for an S Corporation) for its first tax year, and the Shareholders filed their individual income tax returns for the same year, consistent with Company’s intended status as an S corporation .

LAW AND ANALYSIS

Section 1362(b)(1) provides, in general, that an election by a small business corporation under § 1362(a) to be an S corporation may be made for any tax year–

(A) at any time during the preceding tax year, or

(B) at any time during the tax year and on or before the 15th day of the 3d month of the tax year.

Section 1362(b)(3) provides that if--

(A) a small business corporation makes an election under § 1362(a) for any tax year, and

(B) that election is made after the 15th day of the 3d month of the tax year and 2
PLR-102148-02
on or before the 15th day of the 3d month of the following tax year,

then that election shall be treated as made for the following tax year.

Section 1362(b)(5) provides that if--

(A) an election under § 1362(a) is made for any tax year (determined without regard to § 1362(b)(3)) after the date prescribed by this subsection for making the election for that tax year or no such election is made for any tax year, and

(B) the Secretary determines that there was reasonable cause for the failure to timely make the election,

the Secretary may treat such election as timely made for that tax year (and
§ 1362(b)(3) shall not apply).

Based on the facts and representations submitted by Company, we conclude that there was reasonable cause for Company’s failure to make a timely S corporation election. Therefore, we conclude that Company's late election under § 1362(a) is to be treated under § 1362(b)(5) as filed timely for its tax year beginning Date. This ruling is contingent, however, on Company filing Form 2553, to be effective on Date, with the appropriate service center no later than 60 days from the date of this letter. A copy of this letter should be attached to the Form 2553.

Except for the specific ruling above, we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the Code. Specifically, we express or imply no opinion on whether Company otherwise is eligible to be an S corporation.

Under a power of attorney on file with this office, we are sending you the original of this letter and a copy to the taxpayer.

This ruling is directed only to the taxpayer who requested it. According to § 6110(k)(3), this ruling may not be used or cited as precedent.

Sincerely,
CHRISTINE ELLISON
Chief, Branch 3
Office of Associate Chief Counsel
(Passthroughs and Special Industries) enclosure: copy of this letter copy of § 110 purposes