PLR 200005034: Late S corporation election accepted for first taxable year

Plain-English summary

A corporation and its two shareholders intended S corporation treatment from the company's first taxable year, but the corporation's Form 2553 was not filed on time. The company and shareholders had filed returns for the first two years consistently with S corporation treatment. The IRS found reasonable cause for the late election and ruled that it would be treated as timely for the first year if the corporation filed a completed Form 2553 within 60 days of the letter. The IRS did not decide whether the company otherwise met the definition of a small business corporation.

Ruling snapshot

• Question: Could the corporation's late S election be treated as timely for its first taxable year?
• Outcome: Relief granted if Form 2553 was filed within 60 days
• Key authorities: IRC §§ 1361(b), 1362(b)(5)

Full text (IRS public release)

200005034
Internal Revenue Service Department of the Treasury Index Number: 1362.01-03 Washington, DC 20224 Person to Contact: Telephone Number: Refer Reply To: CC:DOM:P&SI:2 - PLR-111533-99 Date: NOV -9 1999

X =
A =
B =
D1 =
Year 1 =
Year 2 =

Dear

This letter responds to a letter dated June 23, 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 and B, the sole shareholders of X, intended that X elect to be an S corporation beginning Year 1, its first taxable year. A, as X's president, represents that X relied on its attorney to file any necessary election in order for X to be an S corporation. X's minutes from its Board of Directors meeting indicate that X intended to be an S corporation beginning in Year 1. However, due to an oversight, a Form 2553, Election by a Small Business Corporation, was not timely filed for X's Year 1 taxable year. For Year 1 and Year 2, a Form 1120S, U.S. Income Tax Return for an S Corporation, was filed for X. A and B also filed their income tax returns for their Year 1 and Year 2 taxable years consistent with the treatment of X as an S corporation.

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

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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, 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,

(signed) J. THOMAS HINES

J. THOMAS HINES

Acting Branch Chief,
Branch 2

Office of the Assistant
Chief Counsel

(Passthroughs and
Special Industries)

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