PLR 200535021: Late S election receives relief from formation date

Plain-English summary

A corporation's shareholder intended S corporation status from the company's formation date, but the election was not filed on time. The IRS found reasonable cause for the missed deadline under section 1362(b)(5). It agreed to recognize the election from the intended date if the company otherwise qualified as an S corporation. The corporation had to send an original Form 2553 and a copy of the ruling to the relevant service center within 60 days.

Ruling snapshot

• Question: Could a late S election be effective from the corporation's formation date?
• Outcome: Approved, conditioned on eligibility and filing Form 2553 within 60 days.
• Key authorities: IRC § 1362(a), (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200535021
Third Party Communication: None
Release Date: 9/2/2005
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:B01
PLR-163724-04
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Date:
May 02, 2005

Legend:

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

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

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

This letter is in response to your request, on behalf of X, dated October 27, 2004, for a written determination granting relief under section 1362(b)(5) of the Internal Revenue Code.

Facts

X was incorporated under the laws of State 1 on Date 1. The shareholder of X intended that X elect to be treated as an S corporation effective Date 1. However, the election to be treated as an S corporation, effective Date 1, was not timely filed.

Law and Analysis

Section 1362(a) of the Code provides that a small business corporation can elect to be treated as an S corporation.

Section 1362(b) of the Code provides guidance on when the S election becomes effective. If an S election is made within the first two and one-half months of a corporation=s taxable year, then that corporation will be treated as an S corporation for the year in which the election was made. If the corporation makes an election after the

PLR-163724-04
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first two and one-half months of a corporation=s taxable year, then the corporation will generally not be treated as an S corporation until the following taxable year.

Section 1362(b)(5) of the Code provides that if no election is made pursuant to section 1362(a), or if the election is made after the date prescribed for making such an election, and the Secretary determined reasonable cause existed for the failure to timely make the election, then the Secretary can treat such an election as being timely made for that taxable year and effective as of the first day of that taxable year.

X did not file a timely election to be treated as a S corporation under section 1362(a). X has, however, established reasonable cause for not making a timely S election. Therefore, X is entitled to relief under section 13623(b)(5).

Conclusion

Based solely on the facts submitted and representations made, and provided that X otherwise qualifies as a subchapter S corporation, we conclude that X will be recognized as an S corporation effective Date 1. An original Form 2553 along with a copy of this letter must be forwarded to the relevant Service Center within sixty (60) days from the date of this letter.

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter.

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

Sincerely,

Dianna K. Miosi
Branch Chief, Branch 1
(Passthroughs & Special Industries)

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