PLR 200005015: Missed S corporation election receives late filing relief

Plain-English summary

A company and its shareholders intended S corporation status from the company's first taxable year. They relied on an accounting firm for the filing, but it did not submit Form 2553 on time. The company's identification number application and meeting minutes recorded the intended tax status. The IRS found reasonable cause for the missed election and said it would treat the election as timely if the company filed a completed Form 2553 within 60 days of the letter. It did not decide whether the company otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Could the company make an S corporation election effective for its first taxable year despite missing the filing deadline?
• Outcome: Relief granted if Form 2553 was filed within 60 days
• Key authorities: IRC §§ 1361(b), 1362(b)(5)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Index Number: 1362.01-03 Washington, DC 20224

Number: 200005015
Person to Contact:
Release Date: 2/4/2000
Telephone Number:

Refer Reply To:
CC:DOM:P&SI:2 - PLR-114529-99
Date:
November 5, 1999

X =

A =

B =

D1 =

Year 1 =

Dear
:
This letter responds to a letter dated August 3, 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 first issued stock on D1. A and B, the shareholders of X, intended that X elect to be an S corporation beginning in Year 1, its first taxable year. A and B were not aware of the need to file a Form 2553, Election by a Small Business Corporation, to be an S corporation. X relied on X’s accounting firm to take care of all of the necessary filings. However, a Form 2553 was not timely filed on behalf of X because X’s accounting firm failed to timely file a Form 2553 for X for Year 1. X’s Form SS-4, Application for Employer Identification Number, and X’s minutes from its first meeting indicate 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. Eric Young
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’s authorized representative.

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