PLR 200318003: Late S election treated as timely for first taxable year

Plain-English summary

A corporation with one shareholder intended S corporation treatment from the date it was formed but discovered that the election had not been filed on time. The IRS found reasonable cause under § 1362(b)(5) and agreed to treat the election as timely for the first taxable year. The ruling requires the corporation to file Form 2553 within 60 days with the intended effective date and a copy of the letter. It does not decide whether the corporation otherwise qualifies as an S corporation.

Ruling snapshot

• Question: May the corporation's late S election be treated as timely for its first taxable year?
• Outcome: Approved, conditioned on filing Form 2553 within 60 days.
• Key authorities: IRC § 1362(a), (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200318003
Washington, DC 20224
Release Date: 5/2/2003
Index Number: U.I.L. No.: 1362.01-03 Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-150682-02
Date:
January 7, 2003

Legend

Company
=

State
=

Shareholder =

a
=

Dear :

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

The information submitted discloses that Company was formed on a under the laws of State. Company has one shareholder, Shareholder. 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.

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 a.

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 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
PLR-150682-02
2

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 a, 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 a. However, this ruling is contingent on Company filing Form 2553, Election by a Small Business Corporation, with an effective date of a, 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’s authorized representative.

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,

/s/

MARY BETH COLLINS
Senior Technician Reviewer,
Branch 3
Office of the Associate
Chief Counsel
(Passthroughs and Special
Industries)

Enclosure:
Copy for section 6110 purposes