PLR 200311012: First-year S election may be filed within 60 days

Plain-English summary

A corporation's president said the corporation intended S corporation treatment for its first tax year, but no Form 2553 was filed. The IRS found reasonable cause for the missed election under section 1362(b)(5). It ruled that the election would be treated as timely for that first year if the corporation filed a completed Form 2553, effective for that year, within 60 days of the letter and attached a copy of the ruling. The IRS did not decide whether the corporation met the small business corporation requirements under section 1361(b).

Ruling snapshot

• Question: Can an unfiled S election be treated as timely for the corporation's first tax year?
• 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: 200311012
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-152426-02
Date:
December 3, 2002

Legend

X
=

A
=

D1 =

Year 1 =

Dear
:

This letter responds to a letter, dated September 13, 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 D1 in Year 1. A, as the president of X, represents that X was intended to be an S corporation beginning Year 1, its first taxable year. However, no Form 2553, Election by a Small Business Corporation, was filed with the Internal Revenue Service.

Section 1362(b)(5) of the Code 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 Year 1 taxable year. Accordingly, provided that X makes an election to be an S corporation by filing a completed Form 2553 with the appropriate service

PLR-152426-02
-2-

center effective for its Year 1 taxable year within 60 days following the date of this letter, then such election will be treated as timely made for X's Year 1 taxable year. 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) 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 X’s authorized representative.

Sincerely yours,

MATTHEW LAY
Senior Technician Reviewer,
Branch 2
Associate Chief Counsel
(Passthroughs and Special Industries)

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