PLR 200323036: Late S corporation election allowed for sole shareholder

Plain-English summary

A corporation's sole shareholder intended S corporation status from a specified date in its first tax year. The corporation filed an S corporation return for that year but had not filed Form 2553 to make the election. The IRS found reasonable cause for the late election under section 1362(b)(5). It would treat the election as timely if the corporation filed a completed Form 2553, effective for that year, within 60 days of the letter. The IRS did not decide whether the corporation otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Could the missing Form 2553 be filed late for the corporation's first S year?
• Outcome: Approved, subject to filing within 60 days of the letter.
• Key authorities: IRC §§ 1361(b), 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200323036
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-105924-03
Date:
February 26, 2003

X
=

A
=

D1 =

D2 =

Year 1 =

Dear
:

This letter responds to a letter, dated December 24, 2002, and subsequent correspondence, submitted on behalf of X by its authorized representative, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated on D1. A, as the sole shareholder and president of X, represents that X was intended to be an S corporation beginning D2 of Year 1. However, no Form 2553, Election by a Small Business Corporation, was filed with the Internal Revenue Service. For Year 1, X filed a Form 1120S, U.S. Income Tax Return for an S Corporation.

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.

PLR-105924-03
-2-

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 for X's Year 1 taxable year. Accordingly, provided that X makes an election to be an S corporation by filing a completed Form 2553 with the appropriate service center effective for its Year 1 taxable year, within 60 days following the date of this letter, then such election will be treated as timely made for X's Year 1 taxable year. A copy of this letter should be attached to the Form 2553.

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).

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.

In accordance with the power of attorney on file with this office, a copy of this letter is being sent to X’s authorized representative.

Sincerely yours,

MATTHEW LAY
Senior Technician Reviewer,
Branch 2
Associate Chief Counsel
(Passthroughs and Special Industries)

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