PLR 200311007: Corporation may make late S election for its first tax year

Plain-English summary

A corporation's sole shareholder intended S corporation treatment from its incorporation date, but Form 2553 was not filed on time. The IRS found reasonable cause for the missed deadline under section 1362(b)(5). It ruled that an election would be treated as timely for the tax year beginning on that date if the corporation filed a completed Form 2553 within 60 days of the letter and attached a copy of the ruling. The IRS did not determine whether the corporation otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Can the corporation make its S election effective for the year it was incorporated?
• Outcome: Approved if a completed Form 2553 is filed within 60 days
• Key authorities: IRC §§ 1362(b)(5), 1361(b)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200311007
Washington, DC 20224
Release Date: 3/14/2003
Index Number: 1362.01-03 Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2-PLR-143115-02
Date:
November 21, 2002

Legend

X:

A:

Date 1:

Dear
:

This responds to a letter dated June 24, 2002, and subsequent correspondence, submitted on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated on Date 1. A, the sole shareholder of X, intended for X to be an S corporation effective Date 1. However, a Form 2553, Election by a Small Business Corporation, was not timely filed for X’s taxable year beginning Date 1.

Section 1362(b)(5) provides that if -- (A) an election under § 1362(a) is made for any taxable year after the date prescribed by § 1362(b) for making such election for such taxable year or no such election is made for any taxable year, and (B) 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.

Based solely on the facts and the representations submitted, we conclude that X has established reasonable cause for failing to make a timely election to be an S corporation for X’s taxable year beginning Date 1. Accordingly, provided that X makes an election to be an S corporation by filing a completed Form 2553 with the appropriate

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PLR-143115-02

service center within 60 days following the date of this letter, then such election will be treated as timely made for X’s taxable year beginning Date 1. A copy of this letter should be attached to the Form 2553.

Except as specifically set forth above, no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the Code, including whether X was or is a small business corporation under § 1361(b).

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.

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

Sincerely yours,

Carolyn Hinchman Gray

Carolyn Hinchman Gray
Senior Counsel, Branch 2
Associate Chief Counsel
(Passthroughs and Special Industries)

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