PLR 200239016: Corporation receives late S election relief for its first tax year

Plain-English summary

A corporation's sole shareholder intended S corporation treatment for its first taxable year, but the IRS did not receive a timely Form 2553. The IRS found reasonable cause for the late election. It ruled that a completed election filed within 60 days of the letter would be treated as timely for that first year. The ruling did not decide whether the corporation otherwise met the requirements for a small business corporation.

Ruling snapshot

• Question: Could a late S corporation election take effect for the corporation's first taxable year?
• Outcome: Approved, conditional on filing Form 2553 within 60 days.
• Key authorities: IRC §§ 1362(a), 1362(b), 1362(b)(5), and 1361(b).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200239016
Washington, DC 20224
Release Date: 9/27/2002
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2-PLR-113368-02
Date:
June 21, 2002

Legend

X
=

A
=

D1
=

Year 1
=

Dear

This responds to a letter dated February 15, 2002, and subsequent correspondence, submitted by X’s authorized representative on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated on D1 of Year 1. A, the president of X, represents that the sole shareholder of X intended for X to be an S corporation. However, no timely Form 2553, Election to be a Small Business Corporation, was received by the Internal Revenue Service.

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 2 PLR-113368-02

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 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 the 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