PLR 200242018: Late S corporation election accepted from intended effective date

Plain-English summary

A newly incorporated company intended to elect S corporation status from a specified date, but it did not file a completed Form 2553 on time. The IRS found reasonable cause for the delay under § 1362(b)(5). If the company files a completed election within 60 days of the letter, the IRS will treat it as timely from the intended date. The ruling does not decide whether the company otherwise qualifies as a small business corporation.

Ruling snapshot

• Question: Can the corporation's late S corporation election take effect on the intended date?
• Outcome: Approved, if Form 2553 is filed within 60 days of the letter.
• Key authorities: IRC §§ 1361(b), 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200242018
Washington, DC 20224
Release Date: 10/18/2002
Index Number: 1362.01-03 Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2-PLR-133528-02
Date:
July 12, 2002
X =

Date 1 =

Date 2 =

Dear
:

This letter responds to a letter dated June 10, 2002, 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. The shareholders of X intended for X to be an S corporation effective Date 2. However, no timely completed Form 2553, Election by a Small Business Corporation, was filed on behalf of X effective Date 2.

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 effective Date 2. Accordingly, provided that X makes an election to be an S corporation by filing a completed Form 2553 with the appropriate service center effective Date 2 within 60 days following the date of this letter, then such election will be treated as timely made. 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. 2 PLR-133528-02

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 with this office, a copy of this letter is being sent to X’s authorized representative.

Sincerely,

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

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