PLR 200345037: Company receives relief for a late S corporation election

Plain-English summary

A company and its shareholders intended the company to be an S corporation from its inception, but they had not filed Form 2553 on time. They reported income for one tax year consistently with S corporation status. The IRS found reasonable cause for the late election and treated it as timely for the year beginning on the redacted date. The company had to file Form 2553 within 60 days of the ruling letter and attach a copy of the letter. The IRS did not decide whether the company otherwise qualified as an S corporation.

Ruling snapshot

• Question: Could the company's late S corporation election be treated as timely?
• Outcome: Approved, contingent on filing Form 2553 within 60 days.
• Key authorities: IRC § 1362(a), (b)(1), (b)(3), and (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200345037
Washington, DC 20224
Release Date: 11/07/2003
Index Number: 1362.01-03 Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-123577-03
Date:
July 31, 2003

Company:

Shareholders:

State:
a:
b:

Dear
:

This letter responds to a letter from Company dated March 24, 2003, as well as subsequent correspondence, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code that Company's late election under § 1362(a) to be an S corporation will be treated as timely made.

FACTS

Company was incorporated in State on a. Shareholders intended Company to be an S corporation from inception; however, Form 2553 (Election by a Small Business Corporation) was not timely filed with the Internal Revenue Service. Company filed Form 1120S, U.S. Income Tax Return for an S Corporation, for its tax year b, and 2 PLR-123577-03

Shareholders filed Form 1040, U.S. Individual Income Tax Return, for the same year, consistent with Company’s intended status as an S corporation.

LAW AND ANALYSIS

Section 1362(b)(1) provides, in general, that an election by a small business corporation under § 1362(a) to be an S corporation may be made for any tax year–

(A) at any time during the preceding tax year, or

(B) at any time during the tax year and on or before the 15th day of the 3d month of the tax year.

Section 1362(b)(3) provides that if--

(A) a small business corporation makes an election under § 1362(a) for any tax year, and

(B) that election is made after the 15th day of the 3d month of the tax year and on or before the 15th day of the 3d month of the following tax year,

then that election shall be treated as made for the following tax year.

Section 1362(b)(5) provides that if--

(A) an election under § 1362(a) is made for any tax year (determined without regard to § 1362(b)(3)) after the date prescribed by this subsection for making the election for that tax year or no such election is made for any tax year, and

(B) the Secretary determines that there was reasonable cause for the failure to timely make the election,

the Secretary may treat such election as timely made for that tax year (and § 1362(b)(3) shall not apply).

CONCLUSION

Based on the facts submitted and representations made, we conclude that there was reasonable cause for Company’s failure to make a timely S corporation election. Therefore, Company's late election under § 1362(a) is to be treated under § 1362(b)(5) as filed timely for its tax year beginning a. This ruling is contingent on Company filing 3 PLR-123577-03

Form 2553, to be effective on a, with the appropriate service center no later than 60 days from the date of this letter. A copy of this letter should be attached to the Form 2553.

Except for the specific ruling above, we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the Code. Specifically, we express or imply no opinion on whether Company otherwise is eligible to be an S corporation.

This ruling is directed only to the taxpayer who requested it. According to § 6110(k)(3), this ruling may not be used or cited as precedent.

Sincerely yours,

MARY BETH COLLINS
Senior Technician Reviewer, Branch 3
Office of Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures: copy of this letter copy for § 6110 purposes

cc: