PLR 200543036: Corporation receives relief for late S election

Plain-English summary

A corporation intended to elect S corporation status effective on its incorporation date but did not file the election on time. The IRS found reasonable cause for the missed deadline and granted relief under section 1362(b)(5). The corporation would be recognized as an S corporation from the intended date if it otherwise qualified. It had to submit a properly completed Form 2553, with a copy of the ruling, within 60 days.

Ruling snapshot

• Question: Could the late S corporation election take effect on the intended incorporation date?
• Outcome: Approved, subject to 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: 200543036
Third Party Communication: None
Release Date: 10/28/2005
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-134431-05
Date:
July 22, 2005

Legend:

X = ---------------------------
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D = ----------------

State = ------------

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

This responds to the letter dated June 7, 2005, and related correspondence, submitted on behalf of X, requesting relief under ' 1362(b)(5) of the Internal Revenue Code.

FACTS

X was incorporated on D under the laws of State. X intended to be treated as an S corporation for federal tax purposes effective D, but the S election was not timely filed.

LAW AND ANALYSIS

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

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

PLR-134431-05
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corporation=s taxable year, then the corporation will not be treated as an S corporation until the taxable year after the year in which the S election is made.

Section 1362(b)(5) provides that if no election is made pursuant to ' 1362(a), or, if made, the election is made after the date prescribed for making such an election, and the Secretary determines there was reasonable cause for the failure to timely make the election, then the Secretary may treat such an election as timely made for such taxable year and effective as of the first day of that tax year.

X did not file a timely election to be treated as an S corporation under ' 1362(a) effective D. X has, however, established reasonable cause for not making a timely election and is entitled to relief under ' 1362(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 D. Within 60 days from the date of this letter, X should submit a properly completed Form 2553, with a copy of this letter attached, to the relevant service center.

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 requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

In accordance with the Power of Attorney on file with this office, a copy of this letter is being mailed to your authorized representative.

Sincerely,

Dianna K. Miosi
Chief, Branch 1
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

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