Missing S election may take effect from incorporation

Plain-English summary

A corporation’s sole shareholder intended S corporation treatment from incorporation, but the IRS had no record of a timely Form 2553. The IRS granted late-election relief under section 1362(b)(5). The corporation may use its intended effective date if it otherwise qualifies for S status and submits a properly completed Form 2553 within 60 days of the letter. A copy of the ruling must accompany the filing to the relevant service center. The IRS did not decide whether the corporation met the substantive requirements for S status.

Ruling snapshot

• Question: Can S status begin at incorporation when the IRS has no record of a timely election?
• Outcome: Approved, conditioned on substantive eligibility and filing Form 2553 with the ruling within 60 days.
• Key authorities: IRC § 1362(a), (b)(3), and (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200649009
Third Party Communication: None
Release Date: 12/8/2006
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:B02
                                                           PLR-114288-06
                                                           Date:
     -
                                                           August 22, 2006

Legend:

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

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

Dear -------------

This responds to a letter dated December 7, 2005, and subsequent correspondence, submitted on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

FACTS

X was incorporated in State on Date 1. The sole shareholder of X, intended for X to be an S corporation effective Date 1. However, the Internal Revenue Service has no record of a Form 2553, Election by a Small Business Corporation, being timely filed for X. 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.

PLR-114288-06
2

Section 1362(b) provides the rule on when an S election will be effective. Generally, 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. Section 1362(b)(3) provides that if an S election is made after the first two and one-half months of a corporation's taxable year, then the corporation will not be treated as an S corporation until the taxable year after the year in which the S election is made.

Section 1362(b)(5) provides that if (1) an election under § 1362(a) is made for any taxable year after the date prescribed by § 1362(b) for making the election for the taxable year or 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 the election, then the Secretary may treat the election as timely made for such taxable year and § 1362(b)(3) shall not apply.

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 Date 1, provided that within 60 days from the date of this letter, X submits a properly completed Form 2553, Election by a Small Business Corporation, with a copy of this letter attached, to the relevant service center.

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) 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,

Beverly Katz
Senior Technician Reviewer, Branch 2
Associate Chief Counsel
(Passthroughs & Special Industries)
Enclosures (2)
Copy of this letter
Copy for § 6110 purposes
cc: