PLR 200302024: Business manager's missed S election receives relief

Plain-English summary

A corporation's two shareholders relied on a business manager to file Form 2553 so the company would have S corporation status from incorporation. The filing was late. The IRS found reasonable cause and agreed to treat the election as timely if the company filed a completed Form 2553 with the intended effective date and a copy of the ruling within 60 days. The IRS did not decide whether the company otherwise qualified as an S corporation.

Ruling snapshot

• Question: May the company treat its late S election as effective from incorporation?
• Outcome: Approved, conditioned on filing Form 2553 and the ruling copy within 60 days.
• Key authorities: IRC §§ 1362(a), 1362(b), 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200302024
Washington, DC 20224
Release Date: 01/10/2003
Index Number: 1362.02-03
Person to Contact:

Telephone Number:

Refer Reply To:
PLR-109802-02 CC:PSI:3
Date:
September 30, 2002

LEGEND

X
=

Y
=

Z
=

d1
=

State =

Dear
:

This letter responds to a letter, written by your authorized representative on behalf of X, requesting relief under § 1362(b)(5) of the Internal Revenue Code.

FACTS

According to the information submitted, X was incorporated on d1 under the laws of State. Y and Z, the officers and shareholders of X, relied on a business manager to file X's Form 2553, Election by a Small Business Corporation, with an effective date of d1. X's Form 2553 however, was not filed timely.

LAW AND ANALYSIS

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

PLR-109802-02
2

Section 1362(b) provides the rule on when an S election will be effective. If an S election is made within the first two and one-half months of a corporation's taxable year, then the corporation will be treated as an S corporation for the year in which the election is made. If an S election is made after the first two and one-half months of a corporation's taxable year, then the 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.

CONCLUSION

Based solely on the facts submitted and representations made, we conclude that X has established reasonable cause for its failing to make a timely election and that X is eligible for relief under § 1362(b)(5). Accordingly, if X makes an election to be an S corporation by filing with the appropriate Service Center a completed Form 2553, containing an effective date of d1 for the election, 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 filed with the Service Center. A copy is enclosed for that purpose.

Except as expressly provided herein, we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter. Specifically, we express or imply no opinion concerning whether X is otherwise eligible to be an S corporation for Federal tax purposes.

Pursuant to 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 Code provides that it may not be used or cited as precedent.

Sincerely,

/s/
Jeanne Sullivan
Senior Technician Reviewer, Branch 3
Office of Associate Chief Counsel
(Passthroughs and Special Industries)