PLR 200443024: Late S corporation election accepted with Form 2553 filing

Plain-English summary

A sole shareholder intended a corporation to be taxed as an S corporation from its formation date, but the corporation missed the Form 2553 filing deadline. The IRS found reasonable cause for the late election under section 1362(b)(5). It ruled that the election would be treated as timely if the corporation filed a completed Form 2553 with the stated effective date within 60 days of the letter. The IRS did not decide whether the corporation otherwise met the requirements for S corporation status.

Ruling snapshot

• Question: Could the corporation's late S election be treated as timely from its requested effective date?
• Outcome: Approved, conditioned on filing Form 2553 within 60 days.
• Key authorities: IRC § 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200443024
Release Date: 10/22/04
Index Number: 1362.02-03

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Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:3 – PLR-137386-03

• Date:
  June 30, 2004

LEGEND

X = ------------------------------------------------------------------------------------------------------
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A = ------------------------------------------------------------------------------------------------------
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State = ------------

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

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

This letter responds to your letter dated June 8, 2003, and subsequent correspondence written on behalf of X, requesting a ruling under ' 1362(b)(5) of the Internal Revenue Code.

FACTS

X was incorporated under State law on D1. A, sole shareholder of X, 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.

X requests a ruling under § 1362(b)(5), that its § 1362(a) election will be treated as timely made for its taxable year that began on D1.

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PLR-137386-03

LAW AND ANALYSIS

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

Section 1362(b)(1) provides that an election under § 1362(a) may be made by a small business corporation for any taxable year – (A) at any time during the preceding taxable year, or (B) at any time during the taxable year and on or before the 15th day of the 3rd month of the taxable year.

Section 1362(b)(3) provides that if (A) a small business corporation makes an election under § 1362(a) for any taxable year, and (B) such election is made after the 15th day or the third month of the taxable year and on or before the 15th day of the 3rd month of the following taxable year, then such election shall be treated as made for the following taxable year.

Section 1362(b)(5) provides that if (A) an election under § 1362(a) is made for any taxable year (determined without regard to § 1362(b)(3)) 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 the 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 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.

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PLR-137386-03

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/
Christine Ellison
Chief, Branch 3
Office of Associate Chief Counsel
(Passthroughs and Special Industries)

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