PLR 200247031: Late S corporation election allowed after showing reasonable cause

Plain-English summary

A corporation's two shareholders intended it to be an S corporation from its first tax year, but Form 2553 was not filed on time. The corporation asked the IRS to treat a late election as timely under section 1362(b)(5). Based on the submitted facts and representations, the IRS found reasonable cause for the missed deadline. It would treat the election as timely if the corporation filed a completed Form 2553 within 60 days of the ruling letter. The IRS did not decide whether the corporation otherwise qualified as a small business corporation under section 1361(b).

Ruling snapshot

• Question: May the corporation's late S corporation election be treated as timely for its first tax year?
• Outcome: Approved: timely treatment 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: 200247031
Washington, DC 20224
Release Date: 11/22/02
Index Number: 1362.01-03 Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2-PLR-124161-02
Date:
August 7, 2002

Legend

X:

A:

B:

Month 1:

Year 1:

Dear
:

This responds to a letter dated April 16, 2002, and subsequent correspondence, 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 in Month 1 of Year 1.
A and B, the shareholders of X, intended for X to be an S corporation effective for the Year 1 taxable year. However, a Form 2553, Election by a Small Business Corporation, was not timely filed for X’s Year 1 taxable year.

Section 1362(b)(5) 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.
2
PLR-124161-02

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 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 for X’s Year 1 taxable year. 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).

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,

Matthew Lay

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

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