PLR 200428001: Late S corporation election effective from formation

Plain-English summary

A corporation's shareholders intended S corporation treatment from the date it was formed, but the election was not filed on time. The IRS found reasonable cause for the missed deadline under § 1362(b)(5). It ruled that the corporation would be treated as an S corporation from its formation date if it otherwise qualified. The corporation was directed to submit Form 2553 within 60 days of the letter, with a copy of the ruling attached.

Ruling snapshot

• Question: Could the corporation's late S election be effective from its formation date?
• Outcome: Approved, if the corporation otherwise qualifies and files Form 2553 as directed.
• Key authorities: IRC § 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200428001
Release Date: 7/9/04
Index Number: 1362.01-00

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Person To Contact:
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Telephone Number:
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In Re: ----------------------------
Refer Reply To:
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CC:PSI:B01 – PLR-100779-04
Date:
March 19, 2004

Legend

X = ----------------------------------
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Date 1 = ------------------------

Dear ----------------

This responds to a letter dated December 10, 2003, and subsequent correspondence, submitted on behalf of X, requesting relief under ' 1362(b)(5) of the Internal Revenue Code.

Facts

X was formed on Date 1. The shareholders of X desired that X elect S corporation treatment effective on Date 1, but the election to be treated as an S corporation was not timely filed. Accordingly, X requests a ruling that it will be treated as an S corporation effective Date 1.

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.
Section 1362(b)(2) provides in relevant part that 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. Under ' 1362(b)(3), however, if an S election is made after the first two and one-half months of

PLR-100779-04
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a corporation's taxable year, then that corporation will not be treated as an S corporation until the taxable year after the year in which the S election is filed.

Section 1362(b)(5) provides that if: (1) 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 such election, then the Secretary may treat such an election as timely made for such taxable year and ' 1362(b)(3) shall not apply.

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

Conclusion

Based solely on the facts submitted and the representations made, and provided that X otherwise qualifies as an S corporation, we conclude that X will be treated as an S corporation effective Date 1. Within 60 days from the date of this letter X should submit a properly completed Form 2553 effective Date 1, 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(s) requesting it. Section 6110(k)(3) of the Code 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 your taxpayer.

The rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination.

Sincerely,

/Dianna Miosi
Branch Chief
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)