PLR 200439015: Corporation may make a late S election

Plain-English summary

A corporation's sole shareholder intended S corporation treatment from incorporation, but the corporation did not file Form 2553 on time. The corporation filed S corporation returns, and its shareholder reported consistently with that treatment. The IRS found reasonable cause for the late election. It will treat the election as timely if the corporation files a completed Form 2553, effective on the intended date, within 60 days of the letter. The IRS did not decide whether the corporation otherwise qualifies for S treatment.

Ruling snapshot

• Question: Can the corporation's late S election take effect from its incorporation date?
• Outcome: Approved, if it files Form 2553 within 60 days; other S corporation eligibility was not decided.
• 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: 200439015
Release Date: 9/24/04
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:
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CC:PSI:B03 – PLR-112410-04
Date:
May 25, 2004

LEGEND

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

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

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

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

This letter responds to your letter dated February 4, 2004, and subsequent correspondence written on behalf of X, requesting a ruling under ' 1362(b)(5) of the Internal Revenue Code.

FACTS

According to the information submitted, X was incorporated under State law on D1. X’s sole shareholder, A, intended for X to be an S corporation beginning D1. However, X’s Form 2553, Election by a Small Business Corporation, was not filed timely.

PLR-112410-04
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A represents that X filed Form 1120S, U.S. Income Tax Return for an S Corporation, for its Year 1 taxable year and subsequent taxable years through Year 2. A also represents that he filed his individual federal income tax returns for these years consistent with X being treated as an S corporation.

LAW AND ANALYSIS

Section 1362(a)(1) provides that a small business corporation may elect to be an S corporation.

Section 1362(b) provides 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 that 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 that corporation will not be treated as an S corporation until the taxable year following the year in which the S election is made.

Section 1362(b)(5) provides that if an election under § 1362(a) is made for any taxable year after the date prescribed by § 1362(b) for making the election for the taxable year or no § 1362(a) election is made for any taxable year, and the Secretary determines that there was reasonable cause for the failure to timely make the election, the Secretary may treat the election as timely made for the 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 S corporation 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 effective D1, within 60 days following the date of this letter, the election will be treated as timely made. A copy of this letter should be attached to the Form 2553 filed with the service center.

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 otherwise eligible to be an S corporation for federal tax purposes.

Pursuant to a power of attorney on file with this office, a copy of this letter is being sent to X.

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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: ------------------------------------------------
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