PLR 200427022: Late S corporation election effective from incorporation

Plain-English summary

A corporation intended to be taxed as an S corporation from its incorporation date but did not file its election on time. The IRS found reasonable cause for the delay and granted relief under § 1362(b)(5). It ruled that the election could be effective from incorporation if the corporation otherwise qualified for S status. The corporation was directed to file a completed Form 2553 within 60 days of the letter and attach a copy of the ruling.

Ruling snapshot

• Question: Could the late S corporation election take effect from the corporation's incorporation date?
• Outcome: Approved, subject to S corporation eligibility and the directed Form 2553 filing.
• Key authorities: IRC § 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200427022
Release Date: 7/2/04
Index Number: 1362.01-03

---------------------------
Person To Contact:
-------------------------
------------------------, ID No. -------------
----------------------------
Telephone Number:
---------------------------
---------------------
Refer Reply To:
CC:PSI:1 – PLR-170644-03
-
Date:
March 29, 2004

Legend

X = ---------------------------
------------------------------------------

D1 = ----------------

State = ---------

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

This responds to the letter dated November 7, 2003, together with subsequent correspondence, submitted on behalf of X, requesting relief under §1362(b)(5) of the Internal Revenue Code

FACTS

X was incorporated on D1 under the laws of State. X intended to be treated as an S corporation for federal tax purposes effective D1, but the S election was not timely filed.

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. 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

PLR-170644-03
2

is made. If the 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 no election is made pursuant to §1362(a), or, if made, the election is made after the date prescribed for making such an election, and the Secretary determines there was reasonable cause for the failure to timely make the election, then the Secretary may treat such an election as timely made for such taxable year and effective as of the first day of that tax year.

CONCLUSION

X did not file a timely election to be treated as an S corporation under §1362(a) effective D1. X has, however, established reasonable cause for not making a timely election and is entitled to relief under §1362(b)(5).

Based solely on the facts submitted and representations made, and provided that X otherwise qualifies as a subchapter S corporation, we conclude that X will be recognized as an S corporation effective D1. Within 60 days from the date of this letter, X should submit a properly completed Form 2553, with a copy of this letter attached, to the relevant service center.

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter.

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.

Sincerely,

/s/ Dianna K Miosi

Dianna K. Miosi
Chief, Branch 1
Office of Office of Associate Chief Counsel (Passthroughs and Special Industries)

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