PLR 200551003: Late S corporation election accepted for first tax year

Plain-English summary

A company's shareholders intended it to be an S corporation from its start, but Form 2553 was not filed on time. The company and shareholders had filed returns consistent with S corporation treatment. The IRS found reasonable cause for the missed election and said it would treat the election as timely for the first tax year if the company filed Form 2553 within 60 days of the ruling, attaching the letter. The IRS did not decide whether the company otherwise met the requirements for S corporation status.

Ruling snapshot

• Question: Could the company's late S corporation election be treated as timely for its first tax year?
• Outcome: Approved. Timely treatment depended on 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: 200551003
Third Party Communication: None
Release Date: 12/23/2005
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:3
PLR-110277-05
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Date:
September 20, 2005

Company: -----------------------------------------------------

Shareholders: ---------------------------------------------
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State: ---------------

a: ------------------------

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

This letter responds to your letter dated February 14, 2005, as well as subsequent correspondence, requesting a ruling under ' 1362(b)(5) of the Internal Revenue Code that Company's late election under ' 1362(a) to be an S corporation will be treated as timely made.

FACTS

Company was incorporated under the laws of State on a. Shareholders intended Company to be an S corporation from inception; however, Form 2553 (Election by a Small Business Corporation) was not timely filed with the Internal Revenue Service. Company has filed timely federal tax returns (Form 1120S – U.S. Income Tax Return for an S Corporation) for all relevant tax years, and Shareholders have timely filed their own federal tax returns (Form 1040 – U.S. Individual Income Tax Return) for the same years, consistent with Company’s intended status as an S corporation.

LAW AND ANALYSIS

Section 1362(b)(1) provides, in general, that an election by a small business corporation under ' 1362(a) to be an S corporation may be made for any tax yearB

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(A) at any time during the preceding tax year, or

(B) at any time during the tax year and on or before the 15th day of the 3d month of the tax year.

Section 1362(b)(3) provides that if--

(A) a small business corporation makes an election under ' 1362(a) for any tax year, and

(B) that election is made after the 15th day of the 3d month of the tax year and on or before the 15th day of the 3d month of the following tax year,

then that election shall be treated as made for the following tax year.

Section 1362(b)(5) provides that if--

(A) an election under ' 1362(a) is made for any tax year (determined without regard to ' 1362(b)(3)) after the date prescribed by § 1362(b) for making the election for that tax year or no such election is made for any tax year, and

(B) the Secretary determines that there was reasonable cause for the failure to timely make the election,

the Secretary may treat such election as timely made for that tax year (and ' 1362(b)(3) shall not apply).

CONCLUSION

Based on the facts and representations submitted, we conclude that there was reasonable cause for Company=s failure to make a timely S corporation election. Therefore, Company's election under ' 1362(a) is to be treated under ' 1362(b)(5) as timely made for its tax year beginning a. This ruling is contingent on Company filing Form 2553, to be effective on a, with the appropriate service center no later than 60 days from the date of this letter. A copy of this letter should be attached to the Form 2553.

Except for the specific ruling above, we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the Code. Specifically, we express or imply no opinion on whether Company otherwise is eligible to be an S corporation.

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This ruling is directed only to the taxpayer on whose behalf it was requested.
According to ' 6110(k)(3), this ruling may not be used or cited as precedent.

Sincerely,

/s/

MARY BETH COLLINS
Senior Technician Reviewer, Branch 3
Office of Associate Chief Counsel
(Passthroughs and Special Industries)

enclosures: copy of this letter copy for ' 6110 purposes

cc: ---------------------------------
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