PLR 200010024: Reasonable cause relief for a missed S election

Plain-English summary

A corporation's sole shareholder intended S corporation treatment from the company's first taxable year. The shareholder did not know Form 2553 was required and relied on the corporation's accountant to file the election, but no timely election was filed. The IRS found reasonable cause under section 1362(b)(5) and ruled that an election for the first year would be treated as timely if the corporation filed a completed Form 2553 within 60 days of the letter. The ruling did not decide whether the corporation met the separate eligibility requirements for S corporations.

Ruling snapshot

• Question: Could the corporation receive relief for its late S election 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: 200010024
Person to Contact:
Release Date: 3/10/2000
Telephone Number:

Refer Reply To:
CC:DOM:P&SI:2 - PLR-114220-99
Date:
December 7, 1999

X =

A =

B =

D1 =

Year 1 =

Dear
:

This letter responds to your letter dated August 15, 1999, and subsequent correspondence , requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated on D1. A, the sole shareholder of X, intended for X to be an S corporation beginning in Year 1, its first taxable year. A was not aware of the requirement that X file a Form 2553, Election by a Small Business Corporation and relied on X’s accountant to file any necessary papers concerning X’s S corporation election. B, X’s accountant, states in an affidavit that when the formation of X was being discussed with A, it was decided that X would be an S corporation. However, a Form 2553, Election by a Small Business Corporation was not timely filed for X 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 -2-
Mr. Thomas F. O’Connor
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
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