PLR 200303035: Corporation receives relief for a late S election

Plain-English summary

A corporation's sole shareholder intended it to be an S corporation from incorporation. Its application for an employer identification number reflected that intent, and it filed an S corporation return, but the tax adviser did not file Form 2553 on time. The IRS found reasonable cause for the missed election under section 1362(b)(5). It ruled that the election would be treated as timely if the corporation filed a completed Form 2553 showing the intended effective date within 60 days of the letter and attached the ruling. The IRS did not decide whether the corporation otherwise qualified as an S corporation.

Ruling snapshot

• Question: May the corporation's late S election take effect on its incorporation date?
• Outcome: Approved, conditional on filing Form 2553 and the ruling within 60 days.
• Key authorities: IRC § 1362(a), (b)(3), (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200303035
Washington, DC 20224
Release Date: 1/17/03
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-143816-02
Date:
October 9, 2002

LEGEND

X =

A =

State =

d1 =

Dear
:

This letter responds to your letter dated July 30, 2002, on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

FACTS

According to the information submitted, X was incorporated under State law on d1. X's sole shareholder, A, intended for X to be an S corporation effective d1. A Form SS-4, Application for Employer Identification Number, filed for X indicates that it was intended for X to be an S corporation. X filed a Form 1120S, U.S. Income Tax Return for an S Corporation, for its taxable year beginning on d1. X relied upon a tax adviser to file its Form 2553, Election by a Small Business Corporation. However, the Form 2553 was not filed timely.

PLR-143816-02
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LAW AND ANALYSIS

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

Section 1362(b) provides the rule on 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 the 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 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(b) for making the election for the taxable year 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 and § 1362(b)(3) shall not apply.

CONCLUSION

Based on the facts submitted and representations made, we conclude that X has established reasonable cause for its failing to make a timely S 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 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.

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 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 X's authorized representative.

PLR-143816-02
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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 yours,

/s/

James A. Quinn
Senior Counsel, Branch 3
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

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