PLR 200330029: Late S corporation election effective from incorporation

Plain-English summary

A corporation's shareholder intended S corporation status from the company's incorporation date, but the election was filed late. The IRS found reasonable cause for the failure and ruled that the election could be effective from incorporation, provided the corporation otherwise qualified as an S corporation. The company was told to submit a completed Form 2553 within 60 days with a copy of the ruling. The IRS expressed no opinion on whether the corporation in fact met all S corporation requirements.

Ruling snapshot

• Question: Could the corporation's late S election take effect on its incorporation date?
• Outcome: Approved, subject to S corporation eligibility and filing Form 2553.
• Key authorities: IRC § 1362(a), (b).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200330029
Washington, DC 20224
Release Date: 7/25/2003
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:1-PLR-113507-03
Date:
April 22 2003

Legend

X =

D1 =

Dear
:

This responds to your letter dated February 25, 2003, requesting relief under § 1362(b)(5) of the Internal Revenue Code for an untimely S corporation election.

Facts

X was incorporated on D1. The shareholder of X intended that X be treated as an S corporation effective on D1, but the election to be treated as an S corporation was not timely filed. Accordingly, X requests a ruling that it will be treated as an S corporation effective D1.

Law and Analysis

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

Section 1362(b) provides the rule on when an S election will be effective.
Section 1362(b)(2) provides in relevant part that 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. Under
§ 1362(b)(3), however, if an S election is made after the first two and one-half months 2 PLR-113507-03

of a corporation's taxable year, then that corporation will not be treated as an S corporation until the taxable year after the year in which the S election is filed.

Section 1362(b)(5) provides that if (1) 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 such election, then the Secretary may treat such an election as timely made for such taxable year and § 1362(b)(3) shall not apply.

X did not file an election to be treated as an S corporation under § 1362(a). X has, however, established reasonable cause for not making a timely S election and is entitled to relief under § 1362(b)(5).

Conclusion

Based solely on the facts submitted and the representations made, and provided that X otherwise qualifies as an S corporation, we conclude that X will be treated as an S corporation effective D1. Within 60 days from the date of this letter, X should submit a properly completed Form 2553, with a copy of this letter attached, to the appropriate service center.

Except as specifically set forth above, no opinion is expressed or implied as to the federal tax consequences of the transaction described above under any other provision of the Code. Specifically, no opinion is expressed concerning whether X is, in fact, an S corporation for federal tax purposes.

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.

Sincerely,

Dianna K. Miosi
Chief, Branch 1
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures:
Copy of this letter
Copy for § 6110 purposes