PLR 200318024: Late S election allowed after advisers failed to file

Plain-English summary

A corporation's two shareholders intended S status from incorporation and retained an attorney and accountant to help, but the advisers failed to file Form 2553. The corporation filed S corporation tax returns for two years. The IRS found reasonable cause under § 1362(b)(5) and ruled that the election would be treated as timely from the requested date if a completed Form 2553 was filed within 60 days with the ruling letter attached. The IRS did not decide whether the corporation otherwise qualified for S status.

Ruling snapshot

• Question: May the corporation make a late S election effective from incorporation?
• Outcome: Approved, subject to filing within 60 days.
• Key authorities: IRC § 1362(a), (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200318024
Washington, DC 20224
Release Date: 5/2/2003
Index Number: 1362.01-03 Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:B03-PLR-156293-02
Date:
January 14, 2003

Legend

X =

A =

B =

d1 =

d2 =

State =

Dear
:

This letter responds to a letter dated September 26, 2002 and subsequent correspondence, written on behalf of X by X’s authorized representative, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

FACTS

The information submitted provides that X was incorporated under State law on d1. A and B, X’s sole shareholders, intended for X to be treated as an S corporation from d1. X retained an attorney and an accountant to aid with its incorporation and S election. However, the tax advisors retained by X failed to file a Form 2553, Election by a Small Business Corporation. 2 PLR-156293-02

X filed a Form 1120S, U.S. Income Tax Return for an S Corporation, for its taxable year beginning d1 and its taxable year beginning d2.

LAW AND ANALYSIS

Section 1362(a)(1) provides that, except as provided in § 1362(g), a small business corporation may elect to be an S corporation. Section 1362(b)(1) provides that such election shall be effective for the current taxable year if it is made during the preceding taxable year or before the 15th day of the third month of the current taxable year. Section 1362(b)(3) provides that an election made after the 15th day of the third month of the current taxable year shall be treated as having been made for the following taxable year.

Section 1362(b)(5) provides that if an election under § 1362(a) is made for any taxable year (determined without regard to § 1362(b)(3)), 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 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).

CONCLUSION

Based on the facts submitted and representations made, we conclude that X has established reasonable cause for failing to make a timely S election. Thus, we conclude 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 of the date of this letter, then such election shall be treated as timely made for X’s taxable year beginning d1. A copy of this letter should be attached to the Form 2553 filed with the service center.

Except as specifically set forth above, we express or imply no opinion concerning the federal tax consequences of this case under any other provision of the Internal Revenue Code. Specifically, we express or imply no opinion on whether X is eligible to be an S corporation.

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. 3 PLR-156293-02

In accordance with the power of attorney on file with this office, we are sending a copy of this letter to X’s authorized representative.

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