PLR 200543024: Late S election may start with business operations

Plain-English summary

A corporation began operations intending to be treated as an S corporation from that date, but inadvertently missed the Form 2553 filing deadline. The IRS found reasonable cause and allowed the election to be treated as timely if the corporation filed a completed Form 2553 with a copy of the ruling within 60 days. The IRS did not decide whether the corporation otherwise satisfied the small business corporation requirements. The effective date is redacted in the public release.

Ruling snapshot

• Question: Could the late S election be effective from the start of business operations?
• Outcome: Approved, conditional on filing Form 2553 within 60 days.
• Key authorities: IRC §§ 1361(b), 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200543024
Release Date: 10/28/2005
Index Number: 1362.01-03

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Telephone Number:
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Refer Reply To:
CC:PSI:B02 – PLR-116830-05
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Date:
July 18, 2005

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

A = ----------------------
SSN: -----------------

D1 = ----------------------

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

This letter responds to a letter dated July 29, 2004, and subsequent correspondence, submitted on behalf of X by X’s authorized representative, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X began business operations on D1. A, the president of X, represents that he intended that X elect to be an S corporation effective D1. However, X inadvertently failed to timely file a Form 2553, Election by a Small Business Corporation.

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.

Based solely on the facts and representations submitted, we conclude that X has established reasonable cause for failing to make a timely election to be an S corporation effective D1. Accordingly, provided that X makes an election to be an S corporation by filing a completed Form 2553 effective D1, along with a copy of this letter, with the

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PLR-116830-05

appropriate service center within 60 days from the date of this letter, then such election will be treated as timely made for D1.

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, include whether X was or is a small business corporation under § 1361(b).

This ruling is directed only to the taxpayer requesting 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 sent to X’s authorized representative.

Sincerely,

J. Thomas Hines
Chief, Branch 2
Office of Associate Chief Counsel
(Passthroughs & Special Industries)

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