PLR 9944012: Late S corporation election granted requested effective date

Plain-English summary

A corporation's shareholder intended S corporation treatment from a specified date, but the election was not filed on time. The IRS found reasonable cause for the delay under § 1362(b)(5). Assuming the corporation otherwise qualified for S status, the IRS agreed to recognize the election from the requested date. The corporation had to file Form 2553 with a copy of the ruling within 60 days of the letter.

Ruling snapshot

• Question: Could the corporation's late S election take effect on the date its shareholder originally intended?
• Outcome: Approved, subject to eligibility and filing Form 2553 within 60 days.
• Key authorities: IRC § 1362(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: 199944012
Release Date: 11/5/199
Refer Reply To:
CC:DOM:P&SI:1 PLR-112524-99
Date:
August 02, 1999

Legend

X
=

State =

D1 =

D2 =

This responds to the letter dated July 14, 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 shareholder 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 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 2 CC:DOM:P&SI:1 PLR-112524-99

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. The Form 2553 submitted with the ruling request is returned herewith.

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 to X.

Sincerely,
Signed/Dianna K Miosi

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