PLR 200550020: Late S election may be effective from incorporation

Plain-English summary

A corporation's shareholders intended it to be an S corporation from incorporation, but no Form 2553 was filed on time. The IRS found reasonable cause for the late election under section 1362(b)(5). 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 meets the requirements to be an S corporation.

Ruling snapshot

• Question: May the corporation's late S election take effect from its 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: 200550020
Release Date: 12/16/2005
Index Number: 1362.01-03

• Person To Contact:
  ---------------------------------------------- ---------------------- --------- -------------
  ------------------------------------- Telephone Number:
  -------------------------------- ---------------------
  --------------------------- Refer Reply To:
  CC:PSI:2 – PLR-125991-05
  Date:
  August 19, 2005

Legend

X = -------------------------------------
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A = --------------------------
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D1 = -----------------------

Dear ---------------------------
This letter responds to a letter dated May 3, 2005, and subsequent correspondence, submitted on behalf of X by its authorized representative, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated on D1. A, X’s president, represents that the shareholders of X intended for X to be an S corporation effective D1. However, no Form 2553, Election by a Small Business Corporation, was timely filed for X.

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 the 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
PLR-125991-05
2

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

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

Sincerely yours,

Audrey Ellis
Reviewer, Branch 2
Associate Chief Counsel
(Passthroughs and Special Industries)

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