PLR 200502020: Sole-shareholder corporation gets late S election relief

Plain-English summary

A corporation's sole shareholder said the company intended S corporation status from its incorporation date, but it did not timely file Form 2553. The corporation requested relief under section 1362(b)(5). The IRS found reasonable cause for the missed deadline and agreed to treat the election as timely from the incorporation date if the corporation filed a completed Form 2553 and attached the ruling within 60 days. The IRS did not decide whether the corporation otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Could the corporation's late S election take effect from incorporation?
• Outcome: Approved, conditioned on filing Form 2553 with the ruling within 60 days.
• Key authorities: IRC §§ 1362(b)(5), 1361(b).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200502020
Release Date: 01/14/2005
Index Number: 1362.01-03

• Person To Contact:
  -------------------- -----------------------
  --------------------------------------------------- Telephone Number:
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  ------------------------------ Refer Reply To:
  CC:PSI:B02 – PLR-128271-04
  Date:
  - September 20, 2004

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

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

This responds to a letter dated April 5, 2004, submitted on behalf of X by its authorized representatives, requesting a ruling under ' 1362(b)(5) of the Internal Revenue Code.

A, as president and sole shareholder of X, represents that X was incorporated on D1 and was intended to be an S corporation effective D1. However, no Form 2553, Election by a Small Business Corporation, was timely filed for X.

Section 1362(b)(5) of the Code 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.

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 effective D1, along with a copy of this

PLR-128271-04
2

letter, with the appropriate service center within 60 days from the date of this letter, then such election will be treated as timely made for D1.

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) of the Code.

This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) of the Code 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.

Sincerely yours,

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

Enclosures: 2
Copy of this letter
Copy for ' 6110 purposes

cc: