PLR 200245005: Late S corporation election receives reasonable cause relief

Plain-English summary

A corporation's shareholders intended it to be an S corporation for a specified tax year, but its Form 2553 was not filed on time. The IRS found reasonable cause for the missed deadline under section 1362(b)(5). It ruled that an election for that year would be treated as timely if the corporation filed a completed Form 2553 within 60 days and attached the ruling. The IRS did not decide whether the corporation met the small business corporation requirements of section 1361(b).

Ruling snapshot

• Question: Could the corporation make an effective S election for the tax year despite missing the filing deadline?
• Outcome: Approved, conditioned on filing Form 2553 within 60 days.
• Key authorities: IRC §§ 1361(b), 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200245005
Washington, DC 20224
Release Date:11/8/2002
Index Number: 1362.01-03 Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2-PLR-128828-02
Date:
July 25, 2002

X =

Date 1 =

Year 1 =

Dear
:

This letter responds to a letter dated May 21, 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 for its Year 1 taxable year. However, a Form 2553, Election by a Small Business Corporation, was not timely filed on behalf of X.

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 for its Year 1 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. 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 2 PLR-128828-02

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.

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