PLR 200307074: Company may file its S election late after attorney omission

Plain-English summary

A company whose sole shareholder was a grantor trust began doing business after a limited liability company merged into it. The company and the trust's trustees and beneficiaries intended S corporation treatment from that date and relied on the company's attorney to file the election. No Form 2553 was filed on time. The IRS found reasonable cause and ruled that the election would be treated as timely if the company filed a completed Form 2553 within 60 days of the letter. It did not decide whether the company otherwise met the requirements for an S corporation.

Ruling snapshot

• Question: May the company treat its late S corporation election as timely?
• Outcome: Approved, conditioned on filing Form 2553 within 60 days.
• Key authorities: IRC §§ 1361(b) and 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200307074
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-154670-02
Date:
November 8, 2002

LEGEND

Company
=

Trust
=

A
=

B
=

Date 1
=

Date 2
=

Dear
:

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

FACTS

The information submitted states that Company was incorporated on Date 1.
Trust is a grantor trust that is Company’s sole shareholder. A and B are the trustees and beneficiaries of Trust. On Date 2, a limited liability company was merged into Company and Company began doing business at that time. Company, Trust, A, and B intended for Company to be treated as an S corporation for federal tax purposes as of Date 2 and relied on Company’s attorney to file the election. However, no Form 2553, Election by a Small Business Corporation, was filed timely with the Internal Revenue Service (IRS).

LAW AND ANALYSIS

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

2
PLR-154670-02

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 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 and § 1362(b)(3) shall not apply.

CONCLUSION

Based on the facts submitted and the representations made, we conclude that Company has established reasonable cause for failing to make a timely election to be an S corporation and is eligible for relief under § 1362(b)(5). Accordingly, if Company makes an election to be an S corporation by filing with the appropriate service center a completed Form 2553, containing an effective date of Date 2, 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 specifically set forth above, we express or imply no opinion concerning the federal tax consequences of the facts described above under any other provision of the Code, including whether Company was or is a small business corporation under § 1361(b) of the Code.

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.

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

Sincerely,
Christine Ellison
Branch Chief, Branch 3
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

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