PLR 200517022: Late S corporation election accepted for a newly formed company

Plain-English summary

A newly formed corporation and its shareholders intended it to be an S corporation from its first tax year, but its Form 2553 election was filed late. The IRS found reasonable cause for the missed deadline under IRC § 1362(b)(5). It agreed to treat the election as timely if the corporation filed a completed Form 2553 within 60 days of the ruling, effective from the requested start date. The IRS did not decide whether the corporation otherwise met the eligibility requirements for an S corporation under § 1361(b).

Ruling snapshot

• Question: Could the corporation's late S corporation election take effect from its first tax year?
• Outcome: Approved, subject to filing a completed Form 2553 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: 200517022
Third Party Communication: None
Release Date: 4/29/2005
Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:B02
PLR-148748-04
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Date:
December 21, 2004

Legend

X: ------------------------------------------------
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A: --------------------------------------------------
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B:
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C:
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Date 1: --------------- -------

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

This responds to a letter dated September 7, 2004, and subsequent correspondence, submitted on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

Facts

The information submitted states that X was incorporated on Date 1. A, B and C, the shareholders of X, on Date 1, intended for X to be an S corporation effective for the taxable year beginning Date 1. However, a Form 2553, Election by a Small Business
PLR-148748-04
2

Corporation, was not timely filed for X’s taxable year beginning Date 1. Accordingly, X requests a ruling that it will be treated as an S corporation effective Date 1.

Law and Analysis

Section 1362(b)(5) 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.

Conclusion

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 Date 1. 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 taxable year beginning Date 1. A copy of this letter should be attached to the Form 2553.

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).

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.

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

Sincerely,

Beverly Katz
Senior Technician Reviewer, Branch 2
Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosures (2)
Copy of this letter
Copy for § 6110 purposes