PLR 200012059: Missing S election treated as timely after filing

Plain-English summary

A corporation's sole shareholder intended S corporation status for its first tax year. A law firm prepared Form 2553, and the company believed a bookkeeper had filed it, but no timely election was filed. The IRS found reasonable cause for the missed deadline under § 1362(b)(5). It ruled that an election for the first year would be treated as timely if the company filed a completed Form 2553 within 60 days of the letter and attached a copy of the ruling. The IRS did not decide whether the company met the separate eligibility rules for an S corporation.

Ruling snapshot

• Question: Could the missed S election be effective for the corporation's first tax year?
• Outcome: Approved if a completed Form 2553 was filed within 60 days.
• Key authorities: IRC §§ 1361(b) and 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Index Number: 1362.01-03 Washington, DC 20224

Number: 200012059
Person to Contact:
Release Date: 3/24/2000
Telephone Number:

Refer Reply To:
CC:DOM:P&SI:2 - PLR-115577-99
Date:
December 21, 1999

X =

A =

D1 =

Year =

Dear
:
This letter responds to your letter dated September 14, 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 of Year. A, the sole shareholder of X, intended that X elect to be an S corporation beginning in Year 1, its first taxable year. X’s law firm prepared a Form 2553, Election by a Small Business Corporation, for X. It was believed that X’s bookkeeper filed the form. However, no Form 2553 was 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 -2-
Mr. Donald D. Clark
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.

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