PLR 200327032: Late S corporation election accepted for incorporation date

Plain-English summary

A corporation with three shareholders intended to elect S corporation status beginning on its incorporation date, but did not file Form 2553 on time. Its treasurer represented that this had been the plan from the start. The IRS found reasonable cause for the late election under § 1362(b)(5). It ruled that the election would be treated as timely from incorporation if the corporation filed a completed Form 2553 and the letter within 60 days. The IRS did not decide whether the corporation otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Can the corporation's S election be effective from its incorporation date despite late filing?
• Outcome: Approved if Form 2553 is filed within 60 days.
• Key authorities: IRC §§ 1362(b)(5), 1361(b).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200327032
Washington, DC 20224
Release Date: 7/3/2003
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2 - PLR-165290-02
Date:
March 25, 2003

X
=

A
=

B
=

C
=

D1 =

Dear
:

This letter responds to a letter dated November 14, 2002, and subsequent correspondence, submitted on behalf of X, by X’s 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, B, and C are the shareholders of X. C, X’s treasurer, represents that X was intended to be an S corporation effective D1. However, no Form 2553, Election by a Small Business Corporation, was timely filed for X.

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.
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PLR-165290-02

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 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’s authorized representative.

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