PLR 200448004: Company that filed as an S corporation gets election relief

Plain-English summary

Two shareholders intended their corporation to have S status from its incorporation date, and the company filed S corporation returns while they filed their own returns consistently. The company had failed to file Form 2553 on time. The IRS found reasonable cause for the missed election and allowed it to be treated as timely if a completed Form 2553 was filed within 60 days of the letter. The IRS did not decide whether the corporation otherwise qualified for S status.

Ruling snapshot

• Question: Could the corporation's S election take effect from incorporation despite the late Form 2553?
• Outcome: Approved, conditional 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: 200448004
Release Date: 11/26/04
Index Number: 1362.01-03

-------------
Person To Contact:
---------------------------------------------- ------------------------, ID No. ------------- Telephone Number:
---------------------------------------
---------------------
------------------------
Refer Reply To:
--------------------------------
CC:PSI:3 – PLR-112402-04
Date:
July 28, 2004
-

LEGEND

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

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

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

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

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

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

This letter responds to a letter, dated February 10, 2004, and subsequent correspondence from your authorized representative 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 and B, X’s shareholders, 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. A represents that from D1 to the current year, X has filed Forms 1120S as if X were an S corporation, and A and B have filed federal income tax returns consistent with the Forms 1120S for X.
PLR-112402-04
2

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

LAW AND ANALYSIS

Section 1362(a)(1) provides that, except as provided in § 1362(g), 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 of the 3rd 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.

Pursuant to a power of attorney on file with this office, a copy of this letter is being sent to X’s authorized representative.
PLR-112402-04
3

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)