PLR 200532010: Sole-shareholder company gets late S election relief

Plain-English summary

A corporation's sole shareholder intended S corporation treatment from the date of incorporation, but the company did not file Form 2553 on time. The IRS found reasonable cause for the missed deadline under section 1362(b)(5). It ruled that the election would be treated as timely for the first tax year if the company filed a completed Form 2553 within 60 days, specified the incorporation date as its effective date, and attached a copy of the ruling. The IRS did not decide whether the company otherwise qualified as an S corporation.

Ruling snapshot

• Question: May the corporation's late S election take effect from incorporation?
• Outcome: Approved, if Form 2553 and the ruling copy are filed within 60 days.
• Key authorities: IRC § 1362(b)(1), (3), (5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200532010
Third Party Communication: None
Release Date: 8/12/2005
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:B03
PLR-107747-04
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Date: April 19, 2005

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

d1 = -----------------

A = -------------------------
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Dear --------------:

We received your letter dated November 24, 2003, on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code. This letter responds to your request.

Facts

X was incorporated under State law on d1. X’s sole shareholder, A, intended for X to be an S corporation as of d1. However, X’s Form 2553, Election to be a Small Business Corporation, was not filed timely.

X requests a ruling that it will be recognized as an S corporation effective for the taxable year beginning d1.

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 such election shall be effective for the current taxable year if it is made during the preceding taxable year or before the 15th day of the third month of the current taxable year. Section 1362(b)(3) provides that an
PLR-107747-04
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election made after the 15th day of the third month of the current taxable year shall be treated as having been made for the following taxable year.

Section 1362(b)(5) provides that if an election under § 1362(a) is made for any taxable year (determined without regard to § 1362(b)(3)), after the date prescribed by this subsection for making such election for such taxable year or no such election is made for any taxable year, and the Secretary determines that there was reasonable cause for the failure to make such election, then the Secretary may treat such an 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 failing to make an S election in a timely manner. Thus, we conclude 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 within 60 days of this letter, containing as an effective date d1, the election shall be treated as timely made for X’s taxable year beginning d1. A copy of this letter should be attached to the Form 2553 filed with the Service Center. A copy is enclosed for that purpose.

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 income tax purposes.

In accordance with the power of attorney on file with this office, a copy of this letter is being sent your authorized representative.

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.

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

Enclosures (2)
A copy of this letter
A copy for § 6110 purposes

cc: