PLR 200328020: Late S corporation election accepted after attorney filing gap

Plain-English summary

A corporation's sole shareholder intended S corporation status from its first tax year and believed the corporation's attorney had filed Form 2553. No timely filing appeared in the records, although the corporation filed an S corporation tax return for that year. The IRS found reasonable cause for the missed election deadline and granted relief under § 1362(b)(5). It would treat the election as timely if a completed Form 2553 and a copy of the ruling were filed within 60 days of the letter. The IRS did not decide whether the corporation was otherwise eligible for S status.

Ruling snapshot

• Question: Could the missed Form 2553 deadline be excused for the corporation's first year?
• Outcome: Approved if Form 2553 was filed within 60 days.
• Key authorities: IRC § 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200328020
Washington, DC 20224
Release Date: 7/11/2003
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-104122-03
Date:
March 27, 2003

LEGEND

X
=

A
=

d1 =

Year 1 =

State =

Dear
:

This letter responds to a letter, dated December 17, 2002, written on behalf of X by X's authorized representative, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

FACTS

According to the information submitted, X was incorporated under State law on d1. X's sole shareholder, A, intended for X to be an S corporation, as of Year 1, X's first taxable year. A assumed that X's attorney filed Form 2553, Election by a Small Business Corporation. However, there is no record that the Form 2553 was filed timely. X filed a Form 1120S, U.S. Income Tax Return for an S Corporation, for its first taxable year.

LAW AND ANALYSIS

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

PLR-104122-03
2
Section 1362(b) provides the rule on when an S election will be effective.
Generally, if an S election 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 after the year in which the S election is made.

Section 1362(b)(5) provides that if (1) an election under § 1362(a) is made for any taxable year after the date prescribed by § 1362(b) for making the election for the taxable year or no § 1362(a) election is made for any taxable year, and (2) the Secretary determines that there was reasonable cause for the failure to timely make the election, then the Secretary may treat the 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 X has established reasonable cause for its failing to make a timely S election, and that X is eligible for relief under § 1362(b)(5). Accordingly, if X makes an election to be an S corporation by filing with the appropriate service center a completed Form 2553 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. A copy of this letter should be attached to the Form 2553 filed with the service center.

Except as expressly provided herein, we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter. Specifically, we express or imply no opinion concerning whether X is otherwise eligible to be an S corporation for federal tax purposes.

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

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.

Sincerely yours,

James A. Quinn
Senior Counsel, Branch 3
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

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

cc: