PLR 200007023: Miscommunication supported relief for a late S election

Plain-English summary

A corporation intended to elect S status for its first tax year, but its attorney and accountant misunderstood which of them would file Form 2553. The corporation filed an S corporation return, and its shareholders filed individual returns consistent with that status. The IRS found reasonable cause for the late election under section 1362(b)(5). It would treat the election as timely if the corporation filed a completed Form 2553 effective for the first year within 60 days of the letter. The IRS did not decide whether the corporation otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Did the filing mix-up justify treating the corporation's S election as timely for its first year?
• Outcome: Approved, conditioned on filing Form 2553 within 60 days
• Key authorities: IRC §§ 1362(b)(5) and 1361(b)

Full text (IRS public release)

INTERNAL REVENUE SERVICE
Index No.: 1362.01-03
Number: 200007023
Release Date: 2/18/2000

CC:DOM:P&SI:2 - PLR-112646-99

November 19, 1999

X =

A =

Date 1 =

Year 1 =

Dear

This is in reply to your letter dated July 15, 1999, submitted on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was organized on Date 1. A, as X's president, represents that it was A’s intent that X elect to be an S corporation effective for Year 1, X's first taxable year, as evidenced by X’s Minutes of Organizational Meeting of Directors. However, a Form 2553, Election by a Small Business Corporation, was not timely filed for that year by X due to miscommunication between X’s attorney and accountant as to who was responsible for filing the election. X filed a Form 1120S for Year 1, and X’s shareholders filed their individual returns 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.

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

2

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,

J. THOMAS HINES
Acting Branch Chief
Branch 2
Office of the Assistant
Chief Counsel
(Passthroughs and
Industries)

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