PLR 200003040: Late S election relief requires filing within 60 days

Plain-English summary

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

Ruling snapshot

• Question: Could the corporation's missed Form 2553 deadline be excused for its first tax year?
• 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: 200003040                   Person to Contact:
Release Date: 1/21/2000
                                    Telephone Number:

                                    Refer Reply To:
                                    CC:DOM:P&SI:2 - PLR-114331-99
                                    Date:
                                    October 27, 1999



X          =


A          =


D1         =

Year 1     =



Dear             :

     This letter responds to a letter dated August 17, 1999, and
subsequent correspondence, written on behalf of X by its
authorized representative, requesting a ruling under § 1362(b)(5)
of the Internal Revenue Code.

     The information submitted states that X was incorporated on
D1 of Year 1. 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 accounting firm and attorney to
take care of all of the filings required to be an S corporation.
However, a Form 2553, Election by a Small Business Corporation,
was not timely filed on behalf of X because X’s accountant and
X’s attorney, each believing the other would file the form, did
not timely file a Form 2553 for X for 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
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,


                                -2-
Mr. A. Jett Reeves
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’s authorized
representatives.


                                      Sincerely yours,



                                      H. GRACE KIM
                                      Assistant to the Chief
                                        Branch 2
                                      Office of the Assistant
                                        Chief Counsel
                                      (Passthroughs and
                                        Special Industries)
Enclosures: 2
     Copy of this letter
     Copy for § 6110 purposes