PLR 200430020: Late S corporation election accepted for initial tax year

Plain-English summary

Two shareholders intended their newly formed corporation to be an S corporation from the start of its first tax year, but its Form 2553 was not filed on time. The IRS found reasonable cause for the late election under section 1362(b)(5). It agreed to treat the election as timely if the corporation filed a completed Form 2553 within 60 days of the letter, effective from the beginning of that first year. The IRS did not decide whether the corporation otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Could the corporation's missed Form 2553 deadline be excused for its first tax year?
• Outcome: Approved, if the corporation filed the completed form within 60 days.
• Key authorities: IRC §§ 1361(b), 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200430020
Release Date: 7/23/04
Index Number: 1362.01-03

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Person To Contact:
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Telephone Number:
-------------------------------------------- --------------------- Refer Reply To:
CC:PSI:B02 – PLR-167806-03
Date:
April 2, 2004

Legend

X: --------------------------------------------------------
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A: ------------------
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D1: --------------------------

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

This responds to a letter dated September 12, 2003, and subsequent correspondence submitted on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated on D1. A and B, the shareholders of X, intended for X to be an S corporation effective for the taxable year beginning D1. However, a Form 2553, Election by a Small Business Corporation, was not timely filed for X’s taxable year beginning D1. Accordingly, X requests a ruling that it will be treated as an S corporation effective D1.

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.
PLR-167806-03
2

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 effective D1. Accordingly, provided that X makes an election to be an S corporation by filing a completed Form 2553 with the appropriate service center effective D1 within 60 days following the date of this letter, then such election will be treated as timely made for X’s taxable year beginning D1. 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 who requested it. Section 6110(k)(3) provides that it may not be used or cited as precedent.

Pursuant to a power of attorney on file with this office, a copy of this letter is being forwarded to X’s authorized representative.

Sincerely yours,

Carolyn Hinchman Gray
Senior Counsel, Branch 2
Associate Chief Counsel
(Passthroughs and Special Industries)

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