PLR 200240008: Late S corporation election treated as timely if filed within 60 days

Plain-English summary

A corporation and its shareholders filed income tax returns consistent with S corporation status from the company's inception, but the corporation had missed the Form 2553 election deadline. The IRS found reasonable cause for the delay. It ruled that the election would be treated as timely for the corporation's first tax year if it filed Form 2553, effective from incorporation, within 60 days of the letter. The ruling did not decide whether the company otherwise qualified as an S corporation.

Ruling snapshot

• Question: Would the corporation's late S election be effective from its first tax year?
• Outcome: Approved, contingent on filing Form 2553 within 60 days.
• Key authorities: IRC § 1362(a) and (b)(1), (b)(3), and (b)(5).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Number: 200240008
Washington, DC 20224
Release Date: 10/4/2002
Index Number: 1362.01-03 Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-111393-02
Date:
June 20, 2002

Company:

Shareholders:

Date:
PLR-111393-02
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Dear
:

This letter responds to letter from your authorized representative dated January 25, 2002, 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 was incorporated on Date. The Shareholders represent that they intended Company 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 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
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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 submitted and representations made, we conclude that there was reasonable cause for Company’s failure to make a timely S corporation election. Therefore, 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 a copy of this letter to your authorized representative.

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 for § 6110 purposes