PLR 200344009: Late S election allowed after consistent tax filings

Plain-English summary

A corporation and its shareholders intended S corporation status from the corporation's formation date and filed tax returns consistently with that treatment, but Form 2553 was late. The IRS found reasonable cause for the delay. It allowed the corporation to file Form 2553 within 60 days with the intended effective date, treating the election as timely under IRC § 1362(b)(5). The ruling did not decide whether the corporation otherwise qualified for S status.

Ruling snapshot

• Question: Could the corporation's late S election be effective from its formation date?
• 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: 200344009 Washington, DC 20224
Release Date: 10/31/2003
Index Number: 1362.01-03 Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-129200-03
Date:
July 25, 2003

LEGEND

X =

A =

B =

C =

D =

E =

State =

d1 =

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Dear

This letter responds to your letter, dated April 21, 2003, as 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 shareholders, A, B, C, D, and E intended for X to be an S corporation, as of d1. However, X's Form 2553, Election by a Small Business Corporation, was not filed timely.

X represents that X and its shareholders filed their federal income tax returns consistent with X being treated as an S corporation for its taxable year beginning 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.
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 d1, 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

PLR-129200-03
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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.

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: