PLR 200010008: Late S election relief after attorney missed filing

Plain-English summary

Four shareholders intended their new corporation to be an S corporation from its first taxable year and relied on an attorney to file the election. The attorney did not timely file Form 2553, although the corporation and shareholders filed their income tax returns consistently with S status. The IRS found reasonable cause for the late election. It ruled that the election would be treated as timely for the first year if a completed Form 2553 was filed within 60 days of the letter. The IRS did not determine whether the corporation met the separate S corporation eligibility rules.

Ruling snapshot

• Question: Could the corporation's missed Form 2553 deadline be excused for its first taxable year?
• Outcome: Approved, conditional on filing Form 2553 within 60 days; eligibility was not decided.
• Key authorities: IRC §§ 1362(b)(5) and 1361(b).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Index Number: 1362.01-03 Washington, DC 20224

Number: 200010008
Person to Contact:
Release Date: 3/10/2000
Telephone Number:

Refer Reply To:
CC:DOM:P&SI:2 - PLR-114897-99
Date:
November 12, 1999

X =

A =

B =

C =

D =

D1 =

Year 1 =

Dear
:

This letter responds to a letter dated, July 15, 1999, and subsequent correspondence, submitted 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, B, C, and D (Shareholders) are the shareholders of X. Shareholders represent that they intended X to be an S corporation beginning Year 1, its first taxable year. The Minutes of the Organizational Actions Taken by the Incorporator and Board of Directors of X evidence this intent. Shareholders relied on X’s attorney to file the appropriate documents. However, the attorney failed to file timely a Form 2553, Election by a Small Business Corporation, for X. For Year 1 X filed a Form 1120S, U.S. Income Tax Return for an S Corporation . Shareholders also -2-

filed their individual tax returns for Year 1 consistent with X being 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)
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 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 requesting it.
Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

In accordance with the power of attorney on file with this office, a copy of this letter is being sent to X’s authorized representative.

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