PLR 200323035: Late S election allowed after corporation changed owners

Plain-English summary

A corporation's founder intended S corporation status from its incorporation date but did not file Form 2553 on time. A later buyer acquired all its stock believing the election had been made. The IRS found reasonable cause for the late filing under section 1362(b)(5). It would treat the election as timely if the corporation filed a completed Form 2553 effective on the incorporation date, with a copy of the letter, within 60 days. The IRS did not decide whether the corporation otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Could the corporation make an S election effective from incorporation despite a late Form 2553?
• Outcome: Approved, subject to filing the form and letter copy within 60 days.
• Key authorities: IRC §§ 1361(b), 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200323035
Washington, DC 20224
Release Date: 6/6/2003
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2 - PLR-159437-02
Date:
February 25, 2003
X
=

A
=

B
=

D1 =

D2 =

Dear
:

This letter responds to a letter October 17, 2002, submitted on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that A incorporated X on D1 and intended that X be an S corporation effective that date. However, no Form 2553, Election by a Small Business Corporation, was timely filed for X. B represents that he purchased all the stock of X on D2, believing that X had made a valid election to be treated as an S corporation effective D1.

Section 1362(b)(5) of the Code provides that if -- (A) an election under § 1362(a) is made for any taxable year 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 (B) the Secretary determines that there was reasonable cause for the failure to timely make such election, the Secretary may treat such an election as timely made for such taxable year.

Based solely on the facts and the representations submitted, we conclude that X has established reasonable cause for failing to make a timely election to be an S corporation effective D1. Accordingly, provided that X makes an election to be an S corporation by filing a completed Form 2553 effective D1, along with a copy of this

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PLR-159437-02

letter, with the appropriate service center within 60 days from the date of this letter, then such election will be treated as timely made for D1.

Except as specifically set forth above, no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the Code, including whether X was or is a small business corporation under § 1361(b) of the Code.

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.

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

Sincerely yours,

Carolyn Hinchman Gray
Senior Counsel, Branch 2
Associate Chief Counsel
(Passthroughs and Special Industries)

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

cc:

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PLR-159437-02

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