PLR 9943022: Late S corporation election receives requested effective date

Plain-English summary

A corporation's shareholders intended to elect S corporation status for a specified effective 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), assuming the company otherwise qualified. It said the company would be recognized as an S corporation from the requested date if it filed a completed Form 2553 with the ruling attached within 60 days. The IRS did not decide whether the company met the separate S corporation eligibility requirements.

Ruling snapshot

• Question: Could the late S election take effect on the requested date?
• Outcome: Approved, subject to eligibility and 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

Index Number: 1362.00-00 Washington, DC 20224

Person to Contact:

Telephone Number:
Number: 199943022
Release Date: 10/29/1999
Refer Reply To:
CC:DOM:P&SI:1 PLR-112641-99
Date:
August 2, 1999

Legend

X
=

State =

D1
=

D2
=

This responds to the letter dated June 18, 1999, submitted on behalf of X, requesting relief under § 1362(b)(5) of the Internal Revenue Code.

FACTS

X was incorporated under State law on D1. X’s shareholders intended that X be a subchapter S corporation, effective D2; however, an S corporation election under § 1362 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. If an S election is made within the first two and one-half months of a corporation’s taxable year, then that corporation will be treated as an S corporation for the year in which the

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election is made. 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 made.

Section 1362(b)(5) provides that if: (1) an election under § 1362(a) is made for any taxable year after the date prescribed for making such election for such 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.

X’s S corporation election was not filed timely for the election to be effective as of D2. Nevertheless, X has established reasonable cause for not making a timely election and is entitled to relief under § 1362(b)(5).

CONCLUSION

Based solely on the facts submitted and representations made and assuming that X otherwise qualifies as a subchapter S corporation as of D2, we conclude that X will be recognized as an S corporation effective as of D2. X should file a completed Form 2553 (with a copy of this ruling attached) reflecting its election of subchapter S corporation status as of D2 with the applicable Service Center within 60 days of the date of this letter.

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. Specifically, no opinion is expressed concerning whether X otherwise satisfies the S corporation eligibility requirements.

This ruling is directed only to the taxpayer who requested 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 ruling is being sent X.

Sincerely,

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

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