PLR 200014027: IRS grants relief when an attorney missed an S election

Plain-English summary

A corporation intended to elect S corporation status, but its attorney failed to file Form 2553. Its state registration described it as an S corporation, and the shareholders agreed to make adjustments consistent with that treatment. Based on the submitted facts and representations, the IRS found reasonable cause under § 1362(b)(5) for the missed election. It would treat the election as timely for the corporation's first tax year if a completed Form 2553 was filed within 60 days of the ruling. The letter did not decide whether the corporation otherwise qualified as an S corporation.

Ruling snapshot

• Question: Could an unfiled S election be treated as timely for the corporation's first tax year?
• Outcome: Approved, contingent on filing Form 2553 within 60 days of the ruling.
• 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: 200014027
Person to Contact:
Release Date: 4/7/2000
Telephone Number:

Refer Reply To:
CC:DOM:P&SI:2 - PLR-115864-99
Date:
January 7, 2000
X =

A =

D1 =

Year 1 =

Dear :

This letter responds to a letter dated September 23, 1999, and subsequent correspondence submitted by X’s authorized representative 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 of Year 1. A, the president of X, represents that X was intended to be an S corporation. This intent is evidenced by X’s Application for Registration with X’s state department of taxation and revenue, which indicates that X is a "Sub-Chapter S Corporation." A further represents that X’s shareholders relied on X’s attorney to take the appropriate action and make the appropriate filings necessary in order to qualify X for taxation under subchapter S. However, X’s attorney failed to file a Form 2553, Election by a Small Business Corporation, for X. Therefore, no Form 2553 was filed for X.

X and its shareholders agree to make adjustments consistent with the treatment of X as 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.

-2-

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 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 forwarded to X’s authorized representative.

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