PLR 200247011: Late S corporation election treated as timely

Plain-English summary

A corporation intended to be taxed as an S corporation from the start of a taxable year, but discovered that it had not filed its election on time. It asked the IRS to treat the late election as timely under section 1362(b)(5). The IRS found reasonable cause for the delay and granted relief for the requested year. The relief depends on the corporation filing Form 2553 with the specified effective date within 60 days of the ruling. The IRS did not decide whether the corporation otherwise qualified for S corporation status.

Ruling snapshot

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

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200247011
Washington, DC 20224
Release Date: 11/22/2002
Index Number: U.I.L. No.: 1362.01-03 Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-127465-02
Date:
August 12, 2002

Legend

Company
=

State
=

Shareholder =

a
=

b
=

Dear
:

This letter responds to a letter dated April 15, 2002, requesting a ruling on behalf of Company under § 1362(b)(5) of the Internal Revenue Code.

The information submitted discloses that Company was incorporated on a and operates in State. Company has one shareholder, Shareholder. It is represented that Company has intended to be an S corporation since b. However, Company discovered that its S election had not been timely filed.

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

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

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 for the year in which the election is made. Section 1362(b)(3) provides that if an S election is made after the first

PLR-127465-02
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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 following the year in which the S election is made.

Section 1362(b)(5) provides that if no § 1362(a) election is made for any taxable year, and the Secretary determines that there was reasonable cause for the failure to timely make such election, then the Secretary may treat such an election as timely made for such taxable year and § 1362(b)(3) shall not apply.

Based on the facts submitted and representations made, we conclude that Company has established reasonable cause for failing to make a timely S election for its taxable year that began on b, and is eligible for relief under § 1362(b)(5). Accordingly, we conclude that Company's § 1362(a) election will be treated as timely made for its taxable year that began on b. However, this ruling is contingent on Company filing Form 2553, Election by a Small Business Corporation, with an effective date of b, with the appropriate Service Center within 60 days from the date of this ruling. A copy of this letter should be attached to the Form 2553.

Except as specifically set forth above, we express or imply no opinion concerning the federal tax consequences of the foregoing facts. Specifically, we express or imply no opinion on whether Company otherwise qualifies as an S corporation.

This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) provides that it may not be used or cited as precedent.

Sincerely yours,

/s/
CHRISTINE ELLISON
Chief, Branch 3
Office of the Associate
Chief Counsel
(Passthroughs and Special
Industries)

Enclosure:
Copy for section 6110 purposes

cc: