Rp 97-48

Part III. Administrative, Procedural, and Miscellaneous
Weighted Average Interest Rate
Update
Notice 97–56
Notice 88–73 provides guidelines for determining the weighted average interest

rate and the resulting permissible range of
interest rates used to calculate current liability for the purpose of the full funding
limitation of § 412(c)(7) of the Internal
Revenue Code as amended by the Omnibus
Budget Reconciliation Act of 1987 and as
further amended by the Uruguay Round

Month

Year

Weighted
Average

October

1997

6.83

Drafting Information
The principal author of this notice is
Donna Prestia of the Employee Plans Division. For further information regarding
this notice, call (202) 622-6076 between
2:30 and 3:30 p.m. Eastern time (not a
toll-free number). Ms. Prestia’s number
is (202) 622-7377 (also not a toll-free
number).

Nonbank Trustees and
Custodians for Education
Individual Retirement Accounts
Notice 97–57
(1) Purpose
This notice informs entities already approved to serve as nonbank trustees and
custodians of individual retirement accounts (IRAs) that they are also approved
to serve as nonbank trustees and custodians of Education IRAs and provides guidance on the procedures for being approved to be a nonbank trustee or
custodian of an Education IRA.
(2) Education IRAs
Section 530 of the Internal Revenue
Code, added by section 213 of the Ta xpayer Relief Act of 1997, Pub. L. 105–34,
provides a new type of tax-free savings
vehicle for higher education expenses,
called an Education Individual Retirement Account (Education IRA). A total
amount of $500 per year may be contributed to Education IRAs for any beneficiary under the age of 18 years. To contribute the maximum of $500 for a
b e n e f i c i a r y, a contributor must have adjusted gross income for the year not ex-

1997–43 I.R.B.

Agreements Act, Pub. L. 103–465 (GAT T ) .
The average yield on the 30-year Tr e asury Constant Maturities for September
1997 is 6.50 percent.
The following rates were determined for
the plan years beginning in the month
shown below.

90% to 107%
Permissible
Range

90% to 110%
Permissible
Range

6.14 to 7.30

6.14 to 7.51

ceeding $95,000 ($150,000 for joint returns). The $500 maximum permitted
contribution is phased out for contributors
with adjusted gross income between
$95,000 and $110,000 ($150,000 and
$160,000 for joint returns). Education
IRAs may be established in taxable years
beginning after 1997.
(3) Approval of nonbank trustees and
custodians

nonbank trustee for Education IRAs, contact Mr. Gibbs at (202) 622-6030 (not a
toll-free call).
26 CFR 601.105: Examination of returns and
claims for refund, credit or abatement;
determination of correct tax liability.
(Also Part I, § 1362; 1.1362–6.)

Rev. Proc. 97–48
SECTION 1. PURPOSE

Under section 530 of the Code, the
trustee or custodian of an Education IRA
must be a bank (as defined in section
408(n) of the Code) or another person approved by the Internal Revenue Service.
Section 1.408–2(e) of the Income Ta x
Regulations sets forth the rules which an
entity must meet to be approved by the
Service as a nonbank trustee or custodian
of an individual retirement account
(IRA). Pursuant to this notice, any entity
already approved by the Service to be a
nonbank trustee or custodian of an IRAi s
automatically approved by the Service to
be a nonbank trustee or custodian of an
Education IRA. In addition, entities other
than banks or previously approved nonbank IRA trustees or custodians may request approval to be a trustee or custodian of an Education IRA in accordance
with the procedures set forth in section
1.408–2(e) and section 3.10 of Rev. Proc.
97-4, 1997–1 I.R.B. 97, dated January 6,
1 9 9 7.
(4) Drafting information
The principal author of this notice is
William Gibbs of the Office of the Associate Chief Counsel (Employee Benefits
and Exempt Organizations). For further
information concerning who may be a

19

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

October 27, 1997

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, a corporation intends to be an S
corporation; however, due to a late S corporation election the corporation was not
permitted to be an S corporation for the
first taxable year specified in the election
(because late S corporation election relief
was not available during this period), the
corporation and the shareholders treated
the corporation as an S corporation for all
succeeding years, and all relevant taxable
years for both the corporation and all of
its shareholders are open.
This revenue procedure does not provide relief for late shareholder elections
including a qualified subchapter S trust
(QSST) election or electing small business trust (ESBT) election.
The procedures in this revenue procedure are in lieu of the letter ruling procedure that is used to obtain relief for
a late S corporation election under
§ 1362(b)(5). A c c o r d i n g l y, user fees do
not apply to corrective action under this
revenue procedure.
Acorporation that is not eligible for relief under this revenue procedure may request relief by applying for a private letter
ruling. The Service will not ordinarily

October 27, 1997

PROC. 97–48.” Attached to the Form
2553 must be a dated declaration signed
by an officer of the corporation authorized to sign and all persons who were
shareholders at any time during the period
that the corporation intended to be an S
corporation, attesting (but, in the case of a
s h a r e h o l d e r, only with respect to that
shareholder) that:
(a) the corporation and the shareholder reported their income (on all affected returns) consistent with S corporation status for the year the S corporation
election should have been made, and for
every subsequent taxable year; and
(b) “Under penalties of perjury, to
the best of my knowledge and belief, the
SECTION 4. AUTOMATIC RELIEF
facts presented in support of this election
FOR LATE S CORPORATION
are true, correct, and complete.”
ELECTIONS UNDER THIS
.02 Situation 2: Automatic Relief
REVENUE PROCEDURE
Where First Intended S Corporation Year
.01 Situation 1: Automatic Relief Filed as a C Corporation.
(1) Eligibility for Automatic Relief.
Where Return Filed as an S Corporation.
Automatic
relief is available in situation 2
(1) Eligibility for Automatic Relief.
Automatic relief is available in situation 1 if all of the following conditions are met:
(a) The corporation fails to qualify as
if all of the following conditions are met:
(a) The corporation fails to qualify an S corporation solely because the Form
as an S corporation solely because the 2553 (Election by a Small Business CorForm 2553 (Election by a Small Business poration) was not filed timely for a taxable year that began prior to January 1,
Corporation) was not filed timely;
1997;
(b) The corporation and all of its
(b) The corporation received notifishareholders reported their income consistent with S corporation status for the cation from the Service that the Form
year the S corporation election should 2553 was not filed timely, that the corpohave been made, and for every subse- ration must file as a C corporation for the
first taxable year the corporation intended
quent taxable year (if any);
(c) At least 6 months have elapsed to be an S corporation, and that the elecsince the date on which the corporation tion would be treated as an S corporation
filed its tax return for the first year the election for the following taxable year;
(c) The corporation and all of its
corporation intended to be an S corporashareholders reported their income (if any)
tion; and
(d) Neither the corporation nor any properly treating the corporation as a C corof its shareholders was notified by the In- poration for the first taxable year the corpoternal Revenue Service of any problem ration intended to be an S corporation;
(d) The corporation and all of its
regarding the S corporation status within
6 months of the date on which the Form shareholders reported their income consistent with S corporation status for all
1120S for the first year was timely filed.
subsequent
years;
(2) Procedural Requirements for Auto (e)
The
period of limitations on asmatic Relief. The corporation must file
with the applicable service center (or dis- sessment under § 6501(a) has not lapsed
trict director if under examination) a com- for any of the taxable years of the corpopleted Form 2553, signed by an officer of ration beginning on or after the date the
the corporation authorized to sign and all corporation intended to be taxable as an S
persons who were shareholders at any corporation; and
(f) The period of limitations on astime during the period that the corporation intended to be an S corporation. The sessment under § 6501(a) has not lapsed
Form 2553 must state at the top of the for any taxable year of any of the corporadocument “FILED PURSUANTTO REV. t i o n ’s shareholders in which any taxable

issue a private letter ruling under
§ 1362(b)(5) if the period of limitations
on assessment under § 6501(a) has lapsed
for any taxable year in which an election
should have been made or any taxable
year that would have been affected by the
election had it been timely made. T h e
procedural requirements for requesting a
private letter ruling are described in Rev.
Proc. 97–1, 1997–1 I.R.B. 11 (or its successor). See, also, Rev. Proc. 97–40,
1997–33 I.R.B. 50, for the special procedure to request relief for late S corporation elections that are filed within 6
months of the original due date of the
election.

20

1997–43 I.R.B.

year described in paragraph (e) above
ends.
(2) Procedural Requirements for Auto matic Relief. The corporation must file
with the applicable service center (or district director if under examination) a completed Form 2553, signed by an officer of
the corporation authorized to sign and all
persons who were shareholders at any
time during the period that the corporation intended to be an S corporation. The
Form 2553 must state at the top of the
document “FILED PURSUANTTO REV.
PROC. 97–48.” Attached to the Form
2553 must be a dated declaration signed
by an officer of the corporation authorized to sign and all persons who were
shareholders at any time during the period
that the corporation intended to be an S
corporation, attesting (but, in the case of a
s h a r e h o l d e r, only with respect to that
shareholder) that:
(a) the corporation and the shareholder reported their income (on all affected returns) consistent with the requirements for automatic relief under
section 4.02 of this revenue procedure;
(b) the corporation and the shareholder agree to amend their tax returns for
the first year and any other affected returns to reflect S corporation status; and
(c) “Under penalties of perjury, to
the best of my knowledge and belief, the
facts presented in support of this election
are true, correct, and complete.”
.03 Relief for Late S Corporation Elec tions. A corporation that satisfies the requirements of either section 4.01 or 4.02
of this revenue procedure will be deemed
to have reasonable cause for the failure to
file a timely S corporation election and
will automatically be granted relief to file
the election for S corporation status to
commence on the date that it intended to
have the S corporation election become
effective. The Service will notify the corporation of the acceptance of its untimely
filed S corporation election under this
revenue procedure, or the denial of a request that fails to satisfy the requirements
of this revenue procedure.
.04 Deemed Shareholders. Any reference in this revenue procedure to a shareholder of an S corporation shall be treated
as including a reference to those persons
whose consent is required under
§ 1.1362–6(b) of the Income Tax Regulations.

1997–43 I.R.B.

SECTION 5. EXAMPLES
.01 S corporation return filed and no
notification from the Service. A, B, and C
formed X corporation on January 1, 1996.
X intended to file an S corporation election; however, X did not file a timely
Form 2553 (Election by a Small Business
Corporation). On March 13, 1997, X files
a Form 1120S (S corporation income tax
return) for the 1996 taxable year, and A,
B, and C file their individual tax returns
as if X were an S corporation. In November 1997, X realizes that an S corporation
election was not timely filed. Neither X
nor its shareholders received any notification from the Service of any problem regarding the S corporation status of X. In
this case, the shareholders and X meet the
requirements of section 4.01 of this revenue procedure. Consequently, X will be
granted automatic late S corporation election relief if A, B, C, and X file a request
for relief in accordance with the procedures described in this revenue procedure.
.02 C corporation return for first year.
A formed X corporation on January 1,
1990. X intended to file an S corporation
election effective as of January 1, 1995;
h o w e v e r, X did not file a Form 2553
(Election by a Small Business Corporation) until May 5, 1995. On June 15,
1995, X received a letter from the Service
notifying X that its S corporation election
was denied for the 1995 taxable year because the S corporation election was not
timely filed, and that the election would
be treated as effective for the 1996 taxable year. X filed a Form 1120 (C corporation income tax return) for the 1995 taxable year and A filed the individual tax
return for 1995 as if X were a C corporation. For the 1996 taxable year, X filed a
Form 1120S (S corporation income tax
return) and A filed the individual tax return as if X were an S corporation. The
period of limitations on assessment under
§ 6501(a) has not lapsed for either the
1995 or the 1996 taxable years for either
X or for A. In this case, A and X meet the
requirements of section 4.02 of this revenue procedure. Consequently, X will be
granted automatic late S corporation election relief if X and A file a request for relief in accordance with the procedures described in this revenue procedure.
SECTION 7. EFFECTIVE DATE

21

This revenue procedure is effective for
all applications for relief satisfying the requirements of section 4 of this revenue
procedure, including those applications
now being considered by the Service.
SECTION 8. PAPERWORK
REDUCTION ACT
The collection of information contained in this revenue procedure has been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act (44
U.S.C. 3507) under control number
1545–1562.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless the collection of information displays a valid
control number.
The collection of information in this
revenue procedure is in Sections 4.01(2)
and 4.02(2). This information is required
to be submitted to the applicable service
center in order to obtain relief for late S
corporation elections. This information
will be used to satisfy the reasonable
cause requirement in § 1362(b)(5). T h e
collection of information is required to obtain a benefit. The likely respondents are
business or other for-profit institutions.
The estimated total annual reporting
burden is 100 hours.
The estimated annual burden per respondent varies from .5 hours to 1.5
hours, depending on individual circumstances, with an estimated average of 1
h o u r. The estimated number of respondents is 100.
The estimated annual frequency of responses is once.
Books or records relating to a collection of information must be retained as
long as their contents may become material in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Mark D. Harris of the Office
of Assistant Chief Counsel (Passthroughs
and Special Industries). For further information regarding this revenue procedure
contact Mr. Harris at (202) 622-3050 (not
a toll-free call).

October 27, 1997