PLR 9936034: Reasonable cause relief for a late S corporation election

Plain-English summary

A corporation's shareholders wanted S corporation treatment from its incorporation date, but the election was not filed on time. The IRS found reasonable cause for the late filing and granted relief under section 1362(b)(5). The corporation would be treated as an S corporation from the requested date if it otherwise qualified. The letter directs it to submit a properly executed Form 2553 and a copy of the ruling to the relevant service center within 60 days.

Ruling snapshot

• Question: Can the corporation's late S election take effect from its incorporation date?
• Outcome: Approved, provided it otherwise qualifies as an S corporation and submits the required documents within 60 days.
• Key authorities: IRC § 1362(a), (b)(2), (b)(3), (b)(5)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Index Number: 1362.00-00 Washington, DC 20224

Number: 199936034
Person to Contact:
Release Date: 9/10/1999
Telephone Number:

Refer Reply To:
CC:DOM:P&SI:1-PLR-106972-99
Date:
June 11, 1999

Legend

X =

Date 1 =

This responds to a letter submitted on behalf of X that requests relief under §1362(b)(5) of the Internal Revenue Code.

FACTS

X was incorporated on Date 1. The shareholders desired S corporation treatment for X , effective Date 1, but an election to be treated as an S corporation was not timely filed.

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

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PLR-106972-99

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.

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 file a timely election to be treated as an S corporation under § 1362(a) effective on Date 1. 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 Date 1. Within 60 days from the date of this letter, please submit a copy of this letter and a copy of a properly executed Form 2553 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.

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

Pursuant to a power of attorney on file in this office, a copy of this letter is being sent to your authorized representative.

Sincerely yours,

Signed/Dianna K. Miosi
DIANNA K. MIOSI
Chief, Branch 1
Office of the Assistant Chief Counsel
(Passthroughs and Special Industries)

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