PLR 200010044: IRS grants conditional relief for a late S election

Plain-English summary

A corporation's sole shareholder intended it to be an S corporation for a particular tax year but did not know that a federal Form 2553 was required. The corporation filed an S corporation return for that year. The IRS found reasonable cause for the late election and said it would treat the election as timely if the corporation filed a completed Form 2553 within 60 days of the letter. The IRS did not decide whether the corporation otherwise met the requirements to be an S corporation.

Ruling snapshot

• Question: Could the corporation make a late S election effective for its intended tax year?
• Outcome: Approved, conditional on filing Form 2553 within 60 days.
• Key authorities: IRC §§ 1361(b), 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Index Number: 1362.01-03 Washington, DC 20224

Number: 200010044
Person to Contact:
Release Date: 3/10/2000 Telephone Number:

Refer Reply To:
CC:DOM:P&SI:2-PLR-114005-99
Date:
December 14, 1999

Legend

X =

A =

Date 1 =

Date 2 =

Year 1 =

Year 2 =

State =

Dear
:

This letter responds to your August 8, 1999 letter and subsequent correspondence, requesting relief under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X incorporated on Date 1 of Year 1 but did not conduct any business until Date 2 of Year

2. A, the president and sole shareholder of X, represents that A
   intended X to be an S corporation beginning with X’s Year 2 taxable year and filed with State for X to be an S corporation. A represents that A was not aware that X also needed to file a Form 2553 (Election by a Small Business Corporation). For Year 2, X filed a Form 1120S (U.S. Income Tax Return for an S corporation).

                           - 2 -
   

   Section 1362(b)(5) of the Code provides that if-- (A) an
   election under § 1362(a) for any taxable year is made 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 Year 2 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 Year 2, within 60 days following the date of this letter, then such election will be treated as timely made for X’s Year 2 taxable year. A copy of this letter should be attached to the Form 2553.

   Except as specifically set forth above, we express no
   opinion 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.

                           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