PLR 200327015: Late S election allowed for one-shareholder corporation

Plain-English summary

A one-shareholder corporation intended S corporation status from incorporation but failed to file Form 2553 on time. It asked the IRS to treat the election as timely for its first tax year. The IRS found reasonable cause under § 1362(b)(5) and granted that treatment. The ruling requires the corporation to file Form 2553 with its original effective date within 60 days of the letter. The IRS did not decide whether the corporation otherwise qualifies as an S corporation.

Ruling snapshot

• Question: Can the corporation's S election be effective from incorporation despite a late Form 2553?
• Outcome: Approved if Form 2553 is filed within 60 days.
• Key authorities: IRC § 1362(a), (b)(3), (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200327015
Washington, DC 20224
Release Date: 7/3/2003
Index Number: 1362.01-03 Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-101639-03
Date:
March 20, 2003

Legend

Corporation =

A
=

State
=

Date 1
=

Dear
:

This letter responds to a letter dated September 25, 2002, and subsequent correspondence, requesting a ruling on behalf of Corporation under § 1362(b)(5) of the Internal Revenue Code.

Facts

According to the information submitted, Corporation was incorporated in State on Date 1. Corporation has one shareholder, A. It was intended that Corporation be an S corporation effective Date 1. Corporation, however, failed to file timely a Form 2553, Election by a Small Business 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 1. 2 PLR-101639-03

Law

Section 1362(a) provides that a small business corporation may elect to be an S corporation.

Section 1362(b) provides when an S election will be effective. 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 for the year in which the election is made. Section 1362(b)(3) provides that if an S 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 an S corporation until the taxable year following the year the S election is made.

Section 1362(b)(5) provides that if an election under § 1362(a) is made for any taxable year after the date prescribed by § 1362(b) for making the election or no 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 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 Corporation has established reasonable cause for failing to make a timely election to be an S corporation for its taxable year that began on Date 1. Accordingly, we conclude that Corporation’s § 1362(a) election will be treated as timely made for its taxable year that began on Date 1. However, this ruling is contingent on Corporation filing Form 2553, with an effective date of Date 1, with the appropriate Service Center within 60 days from the date of this letter. A copy of this letter should be attached to the Form 2553.

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 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) provides that it may not be used or cited as precedent. 3 PLR-101639-03

Pursuant to a power of attorney on file with this office, we are sending a copy of this letter to your authorized representative.

Sincerely yours,

Mary Beth Collins
Senior Technician Reviewer, Branch 3
Office of Associate Chief Counsel
(Passthroughs and Special Industries)

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

cc: