PLR 200306005: Company granted relief for late S corporation election

Plain-English summary

A company intended to be taxed as an S corporation but discovered that it had not timely filed its election. The IRS found that the company had reasonable cause for the failure and was eligible for relief under § 1362(b)(5). It ruled that the election would be treated as timely for the specified tax year if the company filed Form 2553 with the required effective date within 60 days of the ruling. The company had to attach a copy of the ruling to the form. The IRS expressed no opinion on whether the company otherwise qualified as an S corporation.

Ruling snapshot

• Question: May the company receive relief for its late S corporation election?
• Outcome: Approved, subject to filing Form 2553 within 60 days.
• Key authorities: IRC §§ 1362(a), 1362(b), and 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200306005
Washington, DC 20224
Release Date: 02/07/2003
Index Number: 1362.01-03 Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-124169-02
Date:
October 28, 2002

Legend

Company =

A
=

State =

Date =

Dear
:

This letter responds to your letter dated March 7, 2002, and subsequent correspondence requesting a ruling on behalf of Company under § 1362(b)(5) of the Internal Revenue Code.

FACTS

Company was incorporated in State on Date. Company has one shareholder, A.
It is represented that Company has intended to be an S corporation since Date. 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 Date. 2 PLR-124169-02

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 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 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 (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 such election, the Secretary may treat such an election as timely made for such taxable year and § 1362(b)(3) shall not apply.

CONCLUSIONS

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

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 on whether Company otherwise qualifies as an S corporation. 3 PLR-124169-02

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

Pursuant to a power of attorney on file in this office, we are sending a copy of this letter to your authorized representative.

Sincerely,

/s/

Mary Beth Collins
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