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SECTION 1. PURPOSE
This revenue procedure grants automatic relief under 1362(b)(5) of the Internal Revenue Code for certain late S corporation elections.
SECTION 2. BACKGROUND
Section 1361(a)(1) defines an "S corporation," with respect to any taxable year, as a small business corporation for which an S election is in effect for that year.
Section 1362(a)(1) provides that, except in a situation described in 1362(g), a small business corporation may elect to be treated as an S corporation.
Section 1362(b)(1) provides that the corporation may make an election to be treated as an S corporation (A) at any time during the preceding taxable year, or (B) at any time during the taxable year and on or before the 15th day of the 3rd month of the taxable year. Under 1362(b)(3), if an S corporation election is made for a taxable year after the 15th day of the 3rd month of that taxable year and on or before the 15th day of the 3rd month of the following taxable year, then the S corporation election is treated as made for the following taxable year.
Section 1362(b)(5) provides that if (A) an election under 1362(a) is made for any taxable year (determined without regard to 1362(b)(3)) after the date prescribed by 1362(b) for making the election for the taxable year or no election is made for any taxable year, and (B) the Secretary determines that there was reasonable cause for the failure to timely make the election, the Secretary may treat the election as timely made for the taxable year (and 1362(b)(3) shall not apply).
SECTION 3. SCOPE
This revenue procedure provides special procedures to obtain relief for certain late S corporation elections. The revenue procedure only applies to the following two situations:
(1) A corporation intends to be an S corporation, the corporation and its shareholders reported their income consistent with S corporation status for the taxable year the S corporation election should have been made and for every subsequent year, and the corporation did not receive notification from the Service regarding any problem with the S corporation status within 6 months of the date on which the Form 1120S for the first year was timely filed; and
(2) For periods prior to January 1, 1997,...