PLR 200239017: Corporation receives relief for a late S corporation election

Plain-English summary

A corporation and its shareholders intended for the corporation to be an S corporation beginning on a specified date, but they did not timely file Form 2553. The corporation instead filed a Form 1120 for the relevant taxable year, and the corporation and its shareholders agreed to amend their returns consistently with S corporation treatment. The IRS found reasonable cause for the missed election and ruled that a Form 2553 filed within 60 days would be treated as timely for that taxable year. The ruling did not address whether the corporation otherwise qualified as a small business corporation.

Ruling snapshot

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

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200239017
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-126008-02
Date:
June 21, 2002
X
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A
=

B
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C
=

D1
=

D2
=

Dear
:

This letter responds to a letter dated April 29, 2002, submitted on behalf of X, by its authorized representative, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated on D1. A, B, and C are the shareholders of X. The shareholders of X intended for X to be an S corporation beginning on D1. X filed a Form SS-4, Application for Employer Identification Number, indicating that X was an S corporation. However, no timely completed Form 2553, Election by a Small Business Corporation, was filed on behalf of X for the taxable year ending D2.

X filed Form 1120, U.S. Corporation Income Tax Return, for its taxable year ending on D2. X and its shareholders agree to amend their returns consistent with X being treated as an S corporation.
 -2-
PLR-126008-02

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 taxable year ending D2. 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 taxable year ending D2 within 60 days following the date of this letter, then such election will be treated as timely made for X's taxable year ending D2. A copy of this letter should be 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 representatives.

Sincerely yours,
J. THOMAS HINES
Chief, Branch 2
Associate Chief Counsel
(Passthroughs and Special Industries)

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

cc: