PLR 200241026: First-year S corporation election receives filing relief

Plain-English summary

A company's sole shareholder intended to elect S corporation treatment for its first tax year, but the company did not timely file a completed Form 2553. The IRS found reasonable cause for the missed deadline. It ruled that the election would be treated as timely for that first year if the company filed the form within 60 days of the letter. The ruling did not decide whether the company otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Can the company make a late S corporation election for its first tax year?
• Outcome: Approved if Form 2553 is filed within 60 days.
• Key authorities: IRC §§ 1361(b), 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200241026
Washington, DC 20224
Release Date: 10/11/2002
Index Number: 1362.01-03 Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2-PLR-128322-02
Date:
July 5, 2002
X
=

A
=

Date 1 =

Year 1 =

Dear
:

This letter responds to a letter dated December 19, 2001, submitted 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 Date 1. A, the sole shareholder of X, intended for X to be an S corporation in Year 1. However, no timely completed Form 2553, Election by a Small Business Corporation, was filed on behalf of X for Year 1.

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 mo 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 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. 2 PLR-128322-02

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(s) requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

Sincerely,

Matthew Lay
Acting Branch Chief, Branch 2
Associate Chief Counsel
(Passthroughs and Special Industries)

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

cc:

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