PLR 200340003: Late S election allowed from first stock issuance

Plain-English summary

A corporation intended to elect S status when it first issued shares but did not timely file Form 2553. Its president said it had no stock, business, or assets before that date, and board minutes recorded the intent to elect S status. The IRS found reasonable cause under IRC § 1362(b)(5) and would treat the election as timely if the corporation filed a completed Form 2553 with the intended effective date within 60 days of the letter. The IRS did not decide whether the corporation otherwise qualified as a small business corporation under § 1361(b).

Ruling snapshot

• Question: May the corporation's late S election take effect on the date it first issued shares?
• 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: 200340003
Washington, DC 20224
Release Date: 10/03/2003
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2 - PLR-122341-03
Date:
June 27, 2003

X
=

A
=

D1 =

Dear :

This letter responds to a letter March 20, 2003, submitted on behalf of X by its authorized representative, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X first issued shares on D1. Prior to D1, A, X’s president, represents that X did not issue shares, conduct business, or own assets. A represents that X intended to be an S corporation effective D1. Additionally, X’s Minutes of Special Meeting of the Board of Directors of X indicates that the Board of Directors of X intended that X elect to be an S corporation. 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.

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

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PLR-122341-03

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