PLR 200324022: Corporation receives relief for a late S corporation election

Plain-English summary

A corporation intended to be taxed as an S corporation from its first taxable year but did not file Form 2553 on time. It filed an S corporation income tax return for that year and asked the IRS to treat the late election as timely. The IRS found reasonable cause under section 1362(b)(5). The relief depends on filing a completed Form 2553, effective for the first taxable year, with a copy of the ruling within 60 days. The IRS did not determine whether the corporation otherwise qualified as a small business corporation under section 1361(b).

Ruling snapshot

• Question: Can the corporation's late S election be treated as timely for its first taxable year?
• Outcome: Approved, conditioned on filing Form 2553 and the ruling within 60 days.
• Key authorities: IRC §§ 1361(b), 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200324022
Washington, DC 20224
Release Date: 6/13/2003
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2 - PLR-159471-02
Date:
February 26, 2003
X
=

A
=

D1
=

Year 1 =

Dear
:

This letter responds to your letter October 14, 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 for X’s first taxable year, Year 1. However, no Form 2553, Election by a Small Business Corporation, was timely filed for X. X filed a Form 1120S, U.S. Income Tax Return for an S corporation, for the Year 1 taxable year.

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 for X’s first taxable year. Accordingly, provided that X makes an election to be an S corporation by filing a completed Form 2553 effective for its Year 1 taxable year, along with a copy of this 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 X’s Year 1 taxable year.
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PLR-159471-02

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,

J.THOMAS HINES
Chief, Branch 2
Associate Chief Counsel
(Passthroughs and Special Industries)

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

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