PLR 200602010: S election allowed from intended shareholder date despite missed filing

Plain-English summary

A corporation's sole shareholder intended S status to begin on a specified date, but Form 2553 was not filed on time. The IRS found reasonable cause for the missed deadline and granted late-election relief under § 1362(b)(5). The corporation could have the election treated as timely from the intended date if it filed a completed form and a copy of the ruling within 60 days. That intended date was later than the corporation's formation date. The letter did not decide whether the company otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Could the S election take effect from the shareholder's intended date despite a late Form 2553?
• Outcome: Approved, conditional on filing the completed form and ruling 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: 200602010
Release Date: 1/13/2006
Index Number: 1362.01-03

• Person To Contact:
  ------------------------ --------------------- -------- -------------
  ----------------------------------------- Telephone Number:
  ----------------- --------------------
  ------------------------------- Refer Reply To:
  CC:PSI:2 – PLR-125106-05
  Date:
  October 05, 2005

Legend

X = -----------------------------------------
--------------------------------------------------

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

Date 2 = ----------------

Dear ------------------------
This letter responds to a letter dated May 4, 2005, and subsequent correspondence, submitted on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated on Date 1. On Date 2, A was X’s sole shareholder. A intended for X to be an S corporation effective Date 2. However, no Form 2553, Election by a Small Business Corporation, was timely filed for X.

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 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 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.
PLR-125106-05
2

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 Date 2. Accordingly, provided that X makes an election to be an S corporation by filing a completed Form 2553 effective Date 2, 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 2.

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.

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 yours,

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

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