PLR 9952046: S corporation election deadline relief granted

Plain-English summary

A corporation's shareholder wanted S corporation treatment from the date the business began, but the election was not timely filed. The IRS found reasonable cause for the missed deadline and granted relief under section 1362(b)(5). It ruled that the corporation would be treated as an S corporation from the requested date, provided it otherwise qualified. The corporation had to submit a properly executed Form 2553 with a copy of the letter. The IRS expressly did not decide whether it otherwise met the requirements for S corporation status.

Ruling snapshot

• Question: Could the late S corporation election take effect when the business began?
• Outcome: Approved, subject to the corporation otherwise qualifying as an S corporation.
• Key authorities: IRC § 1362(a), (b)(2), (b)(3), and (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Index Number: 1362.00-00 Washington, DC 20224

Number: 199952046
Person to Contact:
Release Date: 12/30/1999
Telephone Number:

Refer Reply To:
CC:DOM:P&SI:1-PLR-111944-99
Date:
September 30, 1999

Legend

X =

Date 1 =

Pursuant to a power of attorney on file in this office, this responds to a letter submitted on behalf of X requesting relief under § 1362(b)(5) of the Internal Revenue Code.

FACTS

X began doing business on Date 1. The shareholder of X 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 2 CC:DOM:P&SI:1-PLR-111944-99

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. Please submit a properly executed Form 2553 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 as to whether X otherwise qualifies as an S corporation.

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.

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