PLR 200013024: Late S corporation election allowed for first year

Plain-English summary

A corporation's sole shareholder believed its S corporation election had been filed on time, and both filed returns consistent with S treatment for two years. The IRS found reasonable cause for the missed Form 2553 under section 1362(b)(5). It ruled that an election effective for the corporation's first year would be treated as timely if a completed form was filed within 60 days of the letter. The IRS did not decide whether the corporation otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Can the corporation's late Form 2553 be effective for its first operating year?
• Outcome: Approved: a completed election filed within 60 days will be treated as timely.
• Key authorities: IRC § 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Index Number: 1362.01-03 Washington, DC 20224

Number: 200013024
Person to Contact:
Release Date: 3/31/2000
Telephone Number:

Refer Reply To:
CC:DOM:P&SI:2 - PLR-116450-99
Date:
January 3, 2000
X =

A =

D1 =

Year 1 =

Year 2 =

Dear :

This letter responds to your letter dated October 1, 1999, and subsequent correspondence, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was formed on D1 and began operations in Year 1. A, the sole shareholder of X, represents that A intended for X to be an S corporation beginning in Year 1 and that A believed that A had timely filed a Form 2553, Election by a Small Business Corporation, for X. However, a Form 2553 was not timely filed for X for Year 1. For Year 1 and Year 2, X filed Form 1120S, U.S. Income Tax Return for an S Corporation, and X’s shareholder filed Form 1040, U.S. Individual Income Tax Return, 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) 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 Year 1. 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

-2-
Mr. Jerry T. Long
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