PLR 200505014: Corporation allowed to file late S election

Plain-English summary

A corporation's shareholder intended S corporation treatment from the date of incorporation, but the corporation did not file Form 2553 on time. The IRS found reasonable cause for the late election under IRC § 1362(b)(5). It said the election would be treated as timely for the corporation's first tax year if the corporation filed a completed Form 2553 within 60 days of the letter. The ruling did not determine whether the corporation otherwise qualified as an S corporation.

Ruling snapshot

• Question: Could a late S corporation election take effect on the date of incorporation?
• 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: 200505014
Release Date: 2/4/05
Index Number: 1362.01-03

------------------
Person To Contact:
-------------------------------
----------------------, ID No. -------------
Telephone Number:
----------------------------------------- --------------------
--------------------
Refer Reply To:
--------------------------
CC:PSI:B02 – PLR-136436-04
Date:
September 20, 2004
-

Legend

X = -------------------------------------------
EIN: ------ ----------

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

Date 1 = ----------------------

Year 1 = -------

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

This responds to a letter dated April 30, 2004, submitted on behalf of X, requesting a ruling under ' 1362(b)(5) of the Internal Revenue Code.

X was incorporated on Date 1 under the laws of State. The shareholder of X intended that X elect S corporation treatment effective on Date 1, but X’s Form 2553, Election by a Small Business Corporation, was not timely filed. Accordingly, X requests a ruling that it will be treated as an S corporation effective Date 1.

Section 1362(b)(5) of the Code provides that if B (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. Accordingly, provided that X makes an election to be an S corporation by filing a completed Form 2553 with the appropriate service center effective Date 1, within 60 days following the date of this letter, then such election will be treated as timely made for X's Year 1 taxable year. A copy of this letter should be attached to the Form 2553.

Except as specifically set forth above, no opinion is expressed or implied as to the federal income tax consequences of the transaction described above under any other provision of the Code. Specifically, no opinion is expressed concerning whether X is, in fact, an S corporation for federal tax purposes.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

Pursuant to the power of attorney on file with this office, a copy of this letter is being sent to X’s authorized representative.

Sincerely yours,

Beverly Katz
Senior Technician Reviewer, Branch 2
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

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