PLR 200003033: Late first-year S election allowed with timely Form 2553

Plain-English summary

A corporation's sole shareholder intended to elect S corporation status for its first tax year, and its employer identification number application reflected that intent. Its attorney and accountant each thought the other would file Form 2553, so the form was late. The IRS found reasonable cause under § 1362(b)(5) and agreed to treat the election as timely if the corporation filed a completed Form 2553 within 60 days of the ruling with a copy of the letter attached. The IRS did not decide whether the corporation otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Could the corporation's late first-year S election be treated as timely?
• Outcome: Approved, conditional on filing Form 2553 within 60 days of the letter.
• Key authorities: IRC §§ 1362(b)(5), 1361(b).

Full text (IRS public release)

Internal Revenue Service          Department of the Treasury

Index Number:   1362.01-03        Washington, DC 20224



Number: 200003033                 Person to Contact:
Release Date: 1/21/2000
                                  Telephone Number:

                                  Refer Reply To:
                                  CC:DOM:P&SI:2 - PLR-111559-99
                                  Date:
                                  October 26, 1999




X        =



A        =


D1       =

Year 1   =



Dear            :
          This is in reply to your letter dated June 22, 1999,
and subsequent correspondence, submitted on behalf of X,
requesting a ruling under § 1362(b)(5) of the Internal Revenue
Code.

     The information submitted states that X was incorporated on
D1. A, the sole shareholder of X, intended that X elect to be an
S corporation beginning in Year 1, its first taxable year. A
relied on X’s attorney to take care of all of the filings
required to be qualified as an S corporation . However, a Form
2553, Election by a Small Business Corporation, was not timely
filed for X because X’s accountant and X’s attorney, each
believing that the other would file the form, did not file the
form. X’s Form SS-4, Application for Employer Identification
Number, indicates that X intended to be an S corporation
beginning in Year 1.

     Section 1362(b)(5) of the Code provides that if -- (A) an
election under § 1362(a) is made for any taxable year after the
date prescribed by § 1362(b) for making such election for such
taxable year or no such election is made for any taxable year,
and (B) the Secretary determines that there was reasonable cause


                                -2-
Mr. Peter J. Withoff
for the failure to timely make such election, the Secretary may
treat such an election as timely made for such taxable year.
     Based solely on the facts and the representations submitted,
we conclude that X has established reasonable cause for failing
to make a timely election to be an S corporation for X’s first
taxable year. Accordingly, provided that X makes an election to
be an S corporation by filing a completed Form 2553 with the
appropriate service center effective for its Year 1 taxable year,
within 60 days following the date of this letter, then such
election will be treated as timely made for X’s Year 1 taxable
year. A copy of this letter should be attached to the Form 2553.

     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, including
whether X was or is a small business corporation under § 1361(b)
of the Code.

     This ruling is directed only to the taxpayer who requested
it. Section 6110(k)(3) of the Code provides that it may not be
used or cited as precedent.

     Pursuant to a power of attorney on file with this office, a
copy of this letter is being sent to X.


                                      Sincerely yours,



                                      J. THOMAS HINES
                                      Senior Technician Reviewer
                                        Branch 2
                                      Office of the Assistant
                                        Chief Counsel
                                      (Passthroughs and
                                        Special Industries)

Enclosures: 2
     Copy of this letter
     Copy for § 6110 purposes