PLR 200605006: Late S election treated as effective from incorporation

Plain-English summary

A corporation's shareholders intended S corporation status from its incorporation date, but the election was not filed on time. The IRS found reasonable cause for the delay and granted relief under section 1362(b)(5). The corporation would be treated as an S corporation from that date if it otherwise qualified. It was directed to submit a completed Form 2553, with a copy of the ruling, within 60 days.

Ruling snapshot

• Question: May the late S corporation election take effect from the date of incorporation?
• Outcome: Approved, subject to other S corporation requirements and submission of Form 2553.
• Key authorities: IRC § 1362(a), (b).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200605006
Third Party Communication: None
Release Date: 2/3/2006
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-141750-05
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Date:
October 04, 2005

Legend

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

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

This responds to the letter dated June 16, 2005, submitted on behalf of X, requesting relief under ' 1362(b)(5) of the Internal Revenue Code.

Facts

X was incorporated on D1. The shareholders of X intended that X be treated as an S corporation effective on D1, but the election to be treated as an S corporation was not timely filed. Accordingly, X requests a ruling that it will be treated as an S corporation effective D1.

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

PLR-141750-05
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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.

Section 1362(b)(5) provides that if (1) no ' 1362(a) election is made for any taxable year and (2) the Secretary determines that there was reasonable cause for the failure to timely make such election, then the Secretary may treat such an election as timely made for such taxable year and ' 1362(b)(3) shall not apply.

X did not timely file an election to be treated as an S corporation under ' 1362(a).
X has, however, established reasonable cause for not making a timely S election and is entitled to relief under ' 1362(b)(5).

Conclusion

Based solely on the facts submitted and the representations made, and provided that X otherwise qualifies as an S corporation, we conclude that X will be treated as an S corporation effective D1. 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 appropriate service center.

Except as specifically set forth above, no opinion is expressed or implied as to the federal tax consequences of the facts 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) 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 will be sent to X’s authorized representative.

Sincerely,

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

Enclosures:
Copy of this letter
Copy for ' 6110 purposes