PLR 200320017: Late S corporation election treated as timely if filed promptly

Plain-English summary

A corporation intended to elect S corporation status but never filed Form 2553. The IRS found reasonable cause for the omission and allowed a late election to be treated as timely if the corporation filed a completed form within 60 days of the letter. The corporation asked for an election effective on the date it intended to begin S treatment, but the letter's condition specifies its incorporation date instead; the redacted dates do not resolve that difference. The IRS did not decide whether the corporation otherwise qualified as an S corporation.

Ruling snapshot

• Question: Could the corporation's missing S election be treated as timely under § 1362(b)(5)?
• Outcome: Approved if Form 2553 was filed within 60 days with the effective date specified in the letter.
• Key authorities: IRC § 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200320017
Washington, DC 20224
Release Date: 5/16/2003
Index Number: 1362.01-03 Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-167497-02
Date:
February 4, 2003

Legend

Corporation =

Shareholder =

Date 1
=

Date 2
=

Dear
:

This letter responds to a letter dated October 23, 2002, and subsequent correspondence, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

Facts

Corporation was incorporated on Date 1. Corporation has one shareholder, Shareholder. Commencing Date 2, Corporation intended to be taxed as an S corporation for federal tax purposes, however a Form 2553, Election by a Small Business Corporation, was never filed by Corporation.

Corporation 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 Date 2.
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Applicable Law

Section 1362(a) generally provides that a small business corporation may elect to be an S corporation for federal tax purposes.

Section 1362(b) governs the timeliness of such an election as well as its effective date. Generally, if an election to be treated as an S corporation 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 beginning in the year in which the election was 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 having made an effective election to be treated as an S corporation for federal tax purposes until the following taxable year.

Section 1362(b)(5) provides that if an election to be treated as an S corporation is either made untimely or not made at all, and the Secretary determines that there was reasonable cause for the failure to make a timely election, then the Secretary may treat the corporation as having made a timely election.

Conclusion

Based on the facts submitted and representations made, we conclude that Corporation has established reasonable cause for failing to make a timely election to be an S corporation. Accordingly, provided Corporation makes an election to be treated as an S corporation by filing a completed Form 2553 with an effective date of Date 1 with the appropriate Service Center within 60 days from 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 and is enclosed for that purpose.

Except as specifically set forth above, we express or imply no opinion concerning the federal tax consequences of the facts described above under any other provision of the Internal Revenue Code. Specifically, we express or imply no opinion concerning whether Corporation is an S corporation for federal tax purposes.

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.
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Pursuant to a power of attorney on file with this office, a copy of this letter is being forwarded to your authorized representative.

Sincerely yours,

/s/

Jeanne M. Sullivan
Senior Technician Reviewer
Branch 3
Office of Associate Chief Counsel
(Passthroughs and Special Industries)

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