PLR 200538019: Late S corporation election may take effect from first tax year

Plain-English summary

A company and its owners intended S corporation treatment from the company’s first tax year and filed their returns consistently with that intent. They did not file Form 2553 on time. The IRS found reasonable cause for the late election under section 1362(b)(5). If the company filed a completed Form 2553 within 60 days of the ruling, the IRS would treat its election as timely for the intended effective date. The IRS did not decide whether the company otherwise met the requirements for S corporation status.

Ruling snapshot

• Question: Could the company receive relief for its late S corporation election?
• 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: 200538019
Release Date: 9/23/2005
Index Number: 1362.01-03

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Telephone Number:
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Refer Reply To:
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CC:PSI:3 – PLR-165126-04
Date:
June 14, 2005
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LEGEND

Company = -------------------------------------------------------------------------
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A = --------------------------
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B = --------------------------
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State = ------

a = ----------------------

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

This letter responds to a letter dated November 30, 2004, and subsequent correspondence, written on behalf of Company requesting a ruling under ' 1362(b)(5) of the Internal Revenue Code.

FACTS

According to the information submitted, Company was organized under State law on a. Company’s owners, A and B, intended for Company to be an S corporation beginning a. Accordingly, Company and its owners filed their income tax returns for

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Company’s first taxable year and all subsequent taxable years consistent with Company being an S corporation. However, Company’s Form 2553, Election by a Small Business Corporation, was not timely filed.

LAW AND ANALYSIS

Section 1362(a)(1) provides that a small business corporation may elect to be an S corporation.

Section 1362(b) provides when an S election will be effective. Generally, 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 is made. Section 1362(b)(3) provides that if an S election is made after the first two and one-half months of a corporation’s taxable year, then that corporation will not be treated as an S corporation until the taxable year following the year in which the S election is made.

Section 1362(b)(5) provides that if an election under § 1362(a) is made for any taxable year after the date prescribed by § 1362(b) for making the election for the taxable year or no § 1362(a) election is made for any taxable year, and the Secretary determines that there was reasonable cause for the failure to timely make the election, the Secretary may treat the election as timely made for the taxable year and § 1362(b)(3) shall not apply.

CONCLUSION

Based on the facts submitted and representations made, we conclude that Company has established reasonable cause for its failing to make a timely S corporation election, and that Company is eligible for relief under § 1362(b)(5). Accordingly, if Company makes an election to be an S corporation by filing with the appropriate service center a completed Form 2553 effective a, within 60 days following the date of this letter, the election will be treated as timely made. A copy of this letter should be attached to the Form 2553 filed with the service center.

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 Company is otherwise eligible to be an S corporation for federal tax purposes.

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

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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.

Sincerely,

/s/

Mary Beth Collins
Senior Technician Reviewer, Branch 3
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

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

cc: