PLR 200318004: Late S corporation election may take effect from incorporation

Plain-English summary

A corporation's shareholders intended S corporation status from its incorporation, and an application for an employer identification number reflected that intent. The corporation relied on tax advisers, but its Form 2553 was not filed on time. The IRS found reasonable cause under § 1362(b)(5). If the corporation files a completed Form 2553 within 60 days with the intended effective date, the election will be treated as timely. The IRS did not determine whether the corporation otherwise qualifies as an S corporation.

Ruling snapshot

• Question: Can a late S election be treated as timely from the corporation's intended effective date?
• Outcome: Approved, if Form 2553 is filed within 60 days; other S corporation eligibility was not decided.
• Key authorities: IRC § 1362(a), (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200318004
Washington, DC 20224
Release Date: 5/2/2003
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-157596-02
Date:
January 8, 2003

LEGEND

X =

A =

B =

State =

d1 =

Dear
:

This letter responds to your letter dated October 4, 2002, and subsequent correspondence, written on behalf of X as X's authorized representative, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

FACTS

According to the information submitted, X was incorporated under State law on d1.
X's shareholders, A and B intended that X would be an S corporation effective on d1. A Form SS-4, Application for Employer Identification Number, filed for X indicates that it was
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intended for X to be an S corporation. X relied upon its tax advisors to file its Form 2553, Election by a Small Business Corporation. However, the Form 2553 was not filed timely.

X represents that X and X's shareholders have filed all of their tax returns since d1 as if X were an S corporation.

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.
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(b) for making the election for the taxable year 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 representations made, we conclude that X has established reasonable cause for its failing to make a timely S election and that X is eligible for relief under § 1362(b)(5). Accordingly, if X makes an election to be an S corporation by filing with the appropriate Service Center a completed Form 2553 containing an effective date of d1 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 expressly provided herein, we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter. Specifically, we express or imply no opinion concerning whether X is an S corporation for federal tax purposes.

Pursuant to a power of attorney on file with this office, we are sending a copy of this letter to X.
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This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

Sincerely yours,

/s/

James A. Quinn
Senior Counsel, Branch 3
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

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