PLR 200245030: S corporation election accepted for first tax year despite late filing

Plain-English summary

A corporation's shareholders intended S corporation treatment when the corporation first issued shares, but Form 2553 was not filed on time. The IRS found reasonable cause for the failure and allowed relief under section 1362(b)(5). Its S election will be treated as timely for its first taxable year if the corporation files Form 2553 with the intended effective date and a copy of the ruling within 60 days. The IRS did not decide whether the corporation otherwise qualifies as an S corporation.

Ruling snapshot

• Question: Could the corporation's late S election be treated as timely for its first taxable year?
• Outcome: Approved, subject to filing Form 2553 within 60 days.
• Key authorities: IRC § 1362(a), (b)(3), and (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200245030
Washington, DC 20224
Release Date: 11/8/2002
Index Number: 1362.01-03 Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:B3 PLR-122518-02
Date:
August 2, 2002

Legend

X
=

A
=

B
=

D1
=

Dear
:

This letter responds to your request dated March 21, 2002, and subsequent correspondence, submitted on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

FACTS

X first issued shares on D1. The shareholders of X , A and B, intended that X be an S corporation, but X’s Form 2553, Election by a Small Business Corporation, was not filed timely.

X requests a ruling under § 1362(b)(5) that its § 1362(a) election will be treated as timely made for its first taxable year.

LAW AND ANALYSIS

Section 1362(a) generally provides that a small business corporation may elect to be an S corporation.
 2

Section 1362(b) provides when an S election will be effective. Generally, if an S election is made within the first two and one half months of a corporation's taxable year, then that corporation will be treated as an S corporation beginning the year in which the election is made.

Section 1362(b)(3) provides that if an S election is made after the first two and one half months of a corporation's taxable year, then that corporation will not be treated as an S corporation until the taxable year after the year in which the S election is made.

Section 1362(b)(5) provides that if (1) an election under § 1362(a) is made for any taxable year after the date prescribed by § 1362 for making the election or no § 1362(a) election is made for any taxable year, and (2) the Secretary determines that there was reasonable cause for the failure to timely make the election, then the Secretary may treat the election as timely made for such taxable year.

CONCLUSIONS

Based upon the facts submitted and representations made, we conclude that X has established reasonable cause for not making a timely election and is eligible for relief under § 1362(b)(5). Accordingly, X’s S corporation election will be treated as timely made for its taxable year beginning on D1. This ruling is contingent on X filing Form 2553 with an effective date of D1, with the appropriate Service Center within 60 days from the date of this ruling. A copy of this letter must be attached to the Form 2553 filed with the Service Center.

Except as specifically set forth above, we express or imply no opinion concerning the federal tax consequences of the facts described above under any other provision of the Code. Specifically, we express or imply no opinion concerning whether X otherwise qualifies as an S corporation for federal tax purposes.

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

Sincerely,
Jeanne E. Sullivan
Senior Technician Reviewer, Branch 3
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)
Enclosures (2):
Copy of this letter
Copy for § 6110 purposes cc: