PLR 200420009: Late S election allowed from corporation's first tax year

Plain-English summary

A corporation intended S corporation status from its first tax year, as reflected in its organizational board minutes, but did not file Form 2553 on time. The IRS found reasonable cause for the missed deadline under IRC § 1362(b)(5). It ruled that the election would be treated as timely for that first year if the corporation filed a completed Form 2553 within 60 days of the letter and attached a copy. The IRS did not decide whether the corporation qualified as a small business corporation under IRC § 1361(b).

Ruling snapshot

• Question: Can the corporation's late S election take effect from its first tax year?
• Outcome: Approved if Form 2553 is filed within 60 days as directed.
• Key authorities: IRC §§ 1362(a), 1362(b)(5); eligibility under § 1361(b) left undecided.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200420009
Release Date: 5/14/04
Index Number: 1362.01-03

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Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:B02 – PLR-164074-03
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Date:
January 29, 2004

X = ------------------------------------
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A = --------------------------
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D1 = ----------

Year 1 = -------

Dear ------------------:

This letter responds to a letter, dated November 3, 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 was incorporated on D1 in Year 1. A, the secretary of X, represents that X was intended to be an S corporation beginning Year 1, its first taxable year. The minutes of the organization meeting of the board of directors of X evidences this intent. However, no Form 2553, Election by a Small Business Corporation, was filed timely with the Internal Revenue Service.

Section 1362(b)(5) 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. 2 PLR-164074-03

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 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,

Carolyn Hinchman Gray
Senior Counsel
Branch 2
Office of Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosure (2)
Copy of this letter
Copy for § 6110 purposes