PLR 200311014: Missed S election deadline receives reasonable cause relief

Plain-English summary

A corporation intended S corporation treatment from its incorporation date but missed the election deadline. The IRS found reasonable cause for the late election under section 1362(b)(5). It ruled that the corporation would be recognized as an S corporation effective on that date, provided it otherwise qualified. The corporation was directed to submit a properly completed Form 2553 with a copy of the letter to the relevant service center within 60 days. The IRS did not rule on other tax consequences.

Ruling snapshot

• Question: May the corporation's late S election take effect from its incorporation date?
• Outcome: Approved, subject to a Form 2553 filing within 60 days and otherwise qualifying
• Key authorities: IRC § 1362(a), (b)(5)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200311014
Washington, DC 20224
Release Date: 3/14/2003
Index Number: 1362.01-03 Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:1-PLR-151813-02
Date:
Dec 3 2002

Legend:

X =

D1 =

Dear
:

This responds to a letter dated July 31, 2002, together with subsequent correspondence, submitted on behalf of X, requesting relief under § 1362(b)(5) of the Internal Revenue Code.
FACTS

X was incorporated on D1. X intended to be treated as an S corporation for federal income tax purposes effective on D1, but the S election was not timely filed.

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. 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. If the 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.

PLR-151813-02
2

Section 1362(b)(5) provides that if no election is made pursuant to § 1362(a), or, if made, the election is made after the date prescribed for making such an election, and the Secretary determines there was reasonable cause for the failure to timely make the election, then the Secretary may treat such an election as timely made for such taxable year and effective as of the first day of that tax year.

X did not file a timely election to be treated as an S corporation under § 1362(a) effective on D1. X has, however, established reasonable cause for not making a timely election and is entitled to relief under § 1362(b)(5).

CONCLUSION

Based solely on the facts submitted and representations made, and provided that X otherwise qualifies as a subchapter S corporation, we conclude that X will be recognized as an S corporation effective D1. Within 60 days from the date of this letter, X should submit a properly completed Form 2553, with a copy of this letter attached, to the relevant service center.

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) 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 your authorized representative.

Sincerely,

/s/ Dianna K. Miosi

Dianna K. Miosi
Chief, Branch 1
Associate Chief Counsel
(Passthroughs and Special Industries)
Enclosures (3) copy of this letter copy for § 6110 purposes original Form 2553