PLR 200307069: Late S election allowed for a later tax year

Plain-English summary

A company with two shareholders intended S corporation treatment from incorporation but did not file its election on time. It filed a C corporation return for its first tax year, and the assessment period for that year had closed. The company sought late-election relief for a later tax year, identified in the letter by a redacted date. The IRS found reasonable cause and ruled that its S election would be timely for that later year if it filed Form 2553 within 60 days of the letter, using the later year as the effective date. The IRS did not decide whether the company otherwise qualified as an S corporation.

Ruling snapshot

• Question: May the company make a late S election effective for the later requested tax year?
• Outcome: Approved, conditioned on filing Form 2553 within 60 days.
• Key authorities: IRC § 1362(a), (b)(3), and (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200307069
Washington, DC 20224
Release Date: 2/14/2003
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-118280-02
Date:
November 7, 2002

Legend

Company
=

State
=

Shareholders =

a
=

b
=

Dear
:

This letter responds to a letter dated January 17, 2002, and subsequent correspondence, submitted on behalf of Company requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted discloses that Company was incorporated on a in State. Company has two shareholders, Shareholders. It is represented that Company has intended to be an S corporation since a. However, Company discovered that its S election had not been timely filed. Therefore, Company filed a C corporation income tax return for its first taxable year that began on a, which is now closed for assessments under the statute of limitations.

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

PLR-118280-02
2

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 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.

Pursuant to a power of attorney on file with this office, a copy of this letter is being sent to Company.

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,
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

cc: