PLR 200439010: Late S election allowed with amended returns

Plain-English summary

A corporation's shareholders intended to elect S corporation treatment, but its Form 2553 was not filed on time. The IRS found reasonable cause for the delay and granted relief under § 1362(b)(5). The corporation has 60 days from the letter date to file Form 2553 with the effective date specified in the ruling. The relief also depends on the corporation and its shareholders filing amended returns for two years treating the corporation as an S corporation. The IRS did not decide whether the corporation otherwise qualifies for S treatment.

Ruling snapshot

• Question: May the corporation make a late S election effective on the specified date?
• Outcome: Approved, subject to a Form 2553 within 60 days and amended returns for two years.
• Key authorities: IRC § 1362(a), (b)(3), (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200439010
Release Date: 9/24/04
Index Number: 1362.01-03

--------------------------------------------- Person To Contact:
------------------------------------------------- ------------------------, ID No. ------------- Telephone Number:
-----------------------------
---------------------
-------------------------------
Refer Reply To:
CC:PSI:3 – PLR-104883-04
Date:
-
June 01, 2004

LEGEND

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

A = -----------------------------------------------------------------------------------------------------
-------------------------

B = -----------------------------------------------------------------------------------------------------
-------------------------

State = ----------

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

D2 = ----------------------

Year = -------
1
Year = -------
2

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

This letter responds to a letter dated January 7, 2004, and subsequent correspondence written on behalf of X by X’s authorized representative, requesting a ruling under ' 1362(b)(5) of the Internal Revenue Code.

PLR-104883-04
2

FACTS

According to the information submitted, X was incorporated on D1 in State. X’s shareholders, A and B, intended for X to elect to be treated as an S corporation effective D1. However, X's Form 2553, Election by a Small Business Corporation, was not filed timely.

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.
Generally, 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. Section 1362(b)(3) provides that if an S 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 (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 (and § 1362(b)(3) shall not apply).

CONCLUSION

Based on the facts submitted and representations made, we conclude that X has established reasonable cause for its failing to make a timely election and that X is eligible for relief under § 1362(b)(5). Accordingly, if X makes an election to be an S corporation by filing with the appropriate service center a completed Form 2553, containing an effective date of D2 for the election, within 60 days following the date of this letter, then such election will be treated as timely made. A copy of this letter should be attached to the Form 2553 filed with the service center. This ruling is contingent on X and its shareholders filing amended federal income tax returns for Year 1 and Year 2, treating X as an S corporation.

Except as expressly provided herein, we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter. Specifically, we express or imply no opinion concerning whether X is an S corporation for federal tax purposes.

PLR-104883-04
3

Pursuant to a power of attorney on file with this office, we are sending a copy of this letter to X’s authorized representative.

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.

Sincerely yours,

/s/

James A. Quinn
Senior Counsel, Branch 3
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

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

cc: -------------------------------
---------------------
------------------------------

----------------------------------
----------------------------------
--------------
-----------------------------

-------------------------------------------------------------
-----------------------------------------
----------------------------