PLR 200011019: Late S election allowed after filing misunderstanding

Plain-English summary

A corporation and its shareholders intended S corporation status from its first tax year, as recorded in directors' meeting minutes. They relied on an attorney to prepare and file Form 2553, but a misunderstanding among the people preparing the documents led to a late filing. The IRS found reasonable cause and said it would treat the election as timely if the corporation filed a completed Form 2553 effective for its 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: Could the late S election be treated as timely for the corporation's first tax year?
• Outcome: Approved if a completed Form 2553 was filed within 60 days of the letter.
• 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: 200011019
Person to Contact:
Release Date: 3/17/2000
Telephone Number:

Refer Reply To:
CC:DOM:P&SI:2 - PLR-117296-99
Date:
December 15, 1999
X =

A =

D1 =

Year 1 =

Dear
:

This letter responds to your letter dated October 21,1999, 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, the Co-CEO and Secretary of X, represents that X and its shareholders intended to begin operations as an S corporation beginning in Year 1. X’s Minutes of First Meeting of Directors of X indicate that X was to be an S corporation. X and its shareholders relied on X’s attorney to prepare and file a Form 2553, Election by a Small Business Corporation. However, as a result of a misunderstanding between A and the professionals preparing X’s documents, a Form 2553 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 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 1 taxable year. Accordingly, provided that X makes an election to be an S corporation by filing a completed Form 2553 with the

-2-
Mr. Robert P. Anderson
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.

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