PLR 200005021: Timely signed but unfiled S election receives relief

Plain-English summary

A corporation intended to elect S status for its first taxable year. Its attorney prepared Form 2553 and the company and shareholders signed it on time, but the attorneys inadvertently failed to file it. The corporation filed an S corporation return, and its shareholders filed consistently with S treatment. The IRS found reasonable cause for the missed filing and ruled that the election would be treated as timely if the corporation filed a completed Form 2553 within 60 days of the letter. The IRS did not decide whether the company otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Could a timely signed but unfiled S election be treated as timely?
• 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
Index No.: 1362.01-03
Number: 200005021
Release Date: 2/4/2000

CC:DOM:P&SI:2 - PLR-111960-99

November 8, 1999

X =

A =

Date 1 =

Year 1 =

Dear

This is in reply to your letter dated July 7, 1999, submitted on behalf of X as X’s authorized representative, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated on Date 1 of Year 1. A, as X's president, represents that it was the intent of X’s shareholders that X elect to be an S corporation effective for Year 1, X's first taxable year, as evidenced by a resolution of X’s Board of Directors. X’s attorney prepared a Form 2553, Election by a Small Business Corporation, and X and its shareholders signed it timely, but the form was not timely filed for that year by X because the attorneys that X relied on to handle the S election inadvertently failed to file it. X filed a Form 1120S, U.S. Income Tax Return for an S corporation, for Year 1, and X’s shareholders filed their individual return consistent with X’s having made a timely S election 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.

2

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

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