PLR 200341010: Corporation can make late S election for first tax year

Plain-English summary

A corporation intended to be an S corporation from its first tax year, as reflected in its directors' minutes, and filed an S corporation return for that year. It did not file Form 2553 to make the election. The IRS found reasonable cause for the missed election under IRC § 1362(b)(5). It would treat the election as timely if the corporation filed a completed Form 2553 within 60 days of the letter, effective for its first tax year, and attached the ruling. The IRS did not determine whether the corporation otherwise met the definition of a small business corporation under § 1361(b).

Ruling snapshot

• Question: Could a corporation's unfiled S election be treated as timely for its first tax year?
• Outcome: Approved if Form 2553 is filed within 60 days of the letter.
• Key authorities: IRC §§ 1361(b) and 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200341010
Washington, DC 20224
Release Date: 10/10/2003
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2 - PLR-132601-03
Date:
July 2, 2003

X
=

A
=

D1 =

Year 1 =

Dear
:

This letter responds to a letter, dated May 6, 2003, and subsequent correspondence, 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 was incorporated on D1 in Year 1. A, as the president of X, represents that X was intended to be an S corporation beginning Year 1, its first taxable year. The minutes of a special meeting of the directors of X evidences this intent. However, no Form 2553, Election by a Small Business Corporation, was filed with the Internal Revenue Service. For Year 1 X filed a Form 1120S, U.S. Income Tax Return for an S Corporation.

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 for X's Year 1 taxable year. Accordingly, provided that X makes an election to be an S corporation by filing a completed Form 2553 with the appropriate service

PLR-132601-03
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center 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 for X's Year 1 taxable year. A copy of this letter should be attached to the Form 2553.

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).

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.

In accordance with the power of attorney on file with this office, a copy of this letter is being sent to X’s authorized representative.

Sincerely yours,

Carolyn Hinchman Gray
Senior Counsel
Branch 2
Associate Chief Counsel
(Passthroughs and Special Industries)

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