PLR 200231009: S election relief after representative failed to file Form 2553

Plain-English summary

A corporation's sole shareholder and the shareholder's spouse signed a Form 2553 to elect S corporation status, but the corporation's legal representative did not file it. The shareholder said the corporation had otherwise been treated as an S corporation, including filing an S corporation return. The IRS found reasonable cause for the missed election under section 1362(b)(5). It ruled that the election would be treated as timely for the year beginning when shares were first issued if the corporation filed Form 2553 with that effective date within 60 days of the ruling. The IRS did not decide whether the corporation otherwise qualified for S status.

Ruling snapshot

• Question: Can the corporation's unfiled S election be treated as timely?
• Outcome: Approved, conditioned 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: 200231009
Washington, DC 20224
Release Date: 8/2/2002
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-158017-01
Date:
April 26, 2002

Legend

Company =

A
=

State =

D1 =

D2 =

D3 =

Dear
:

This letter responds to your letter dated September 10, 2001, requesting a ruling on behalf of Company under Internal Revenue Code §1362(b)(5).

FACTS

Company was incorporated in State on D1. Company’s sole shareholder, A, asserts that on D2, Company first issued shares to A.

A has represented that after D2, Company’s legal representative prepared a Form 2553, Election by Small Business Corporation, and sent such form to A. A and

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A’s spouse signified their consent to the classification of Company as an S corporation by signing the Form 2553 and returned the form to Company’s legal representative. Company’s legal representative failed to file the executed Form 2553.

A represents that, at all times since D2, A has treated Company as an S corporation, including causing Company to file Form 1120S for the tax year ending D3.

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.
Generally, if an S election is made within the first two and one half months of a corporation’s taxable year, then that 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, that corporation will not be treated as an S corporation until the taxable year following 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 such election, the Secretary may treat such an election as timely made for such taxable year and §1362(b)(3) shall not apply.

CONCLUSIONS

Based on facts submitted and representations made, we conclude that Company has established reasonable cause for its failure to make a timely election and that Company is eligible for relief under §1362(b)(5). Accordingly, if Company makes an election to be an S corporation by filing a Form 2553 with an effective date of D2 with the appropriate Service Center within 60 days from the date of this ruling, Company’s §1362(a) election will be treated as timely made for its taxable year that begins on D2. A copy of this letter should be attached to the Form 2553.

Except as expressly provided herein, we neither express nor imply any opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. Specifically, we neither express nor imply any opinion as to whether Company otherwise qualifies as an S corporation.

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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 in this office, a copy of this letter is being sent to your authorized representative.

Sincerely,

/s/

Jeanne E. Sullivan
Senior Technician Reviewer, Branch 3
Office of Associate Chief Counsel
(Passthroughs and Special Industries)

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