PLR 200550005: Late S corporation election may take effect at incorporation

Plain-English summary

A corporation's sole shareholder intended it to be an S corporation from its incorporation date, but no Form 2553 was filed on time. The IRS found reasonable cause for the missed deadline. It ruled that an election effective on the incorporation date would be treated as timely if the corporation files a completed Form 2553 with the ruling attached within 60 days. The IRS did not decide whether the corporation otherwise qualifies as a small business corporation.

Ruling snapshot

• Question: Can an S election filed late be effective from the corporation's incorporation date?
• Outcome: Approved, if Form 2553 is filed 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: 200550005
Release Date: 12/16/2005
Index Number: 1362.01-03

--------------------------------------------- Person To Contact:
---------------------------
----------------------, ID No. -------------
---------------------
Telephone Number:
----------------------------
---------------------
Refer Reply To:
CC:PSI:B02 – PLR-110284-05
-
Date:
August 04, 2005

Legend

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

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

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

Year 1 = -------

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

This responds to a letter dated February 8, 2005, submitted on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

Facts

X was incorporated on Date 1 under the laws of State. It was intended that X elect S corporation treatment effective on Date 1, but X’s Form 2553, Election by a Small Business Corporation, was not timely filed. Accordingly, X requests a ruling that it will be treated as an S corporation effective Date 1.

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.

Section 1362(b)(2) provides in relevant part that 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. Under 1362(b)(3), however, if an S election is made after the first two and one-half months of a 2 PLR-110284-05

corporation’s taxable year, then that corporation will not be treated as an S corporation until the taxable year after the year in which the S election is filed.

Section 1362(b)(5) of the Code 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 the representations submitted, we conclude that X has established reasonable cause for failing to make a timely election to be an S corporation. Accordingly, provided that X makes an election to be an S corporation by filing a completed Form 2553 effective Date 1, along with a copy of this letter, with the appropriate service center within 60 days from the date of this letter, then such election will be treated as timely made for Date 1.

Except as specifically set forth above, no opinion is expressed or implied as to the federal income tax consequences of the transaction described above under any other provision of the Code. Specifically, no opinion is expressed concerning whether X is, in fact, an S corporation for federal tax purposes.

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.

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

Sincerely yours,

Beverly Katz
Senior Technician Reviewer, Branch 2
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

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