PLR 200018038: Late S election allowed after missing Form 2553

Plain-English summary

A corporation and its shareholders filed returns as though the corporation had elected S status, and its employer identification application showed that intent. The corporation had relied on its attorney for the election documents, but the IRS had no record of Form 2553. The IRS found reasonable cause for the missed election and agreed to treat it as effective for the corporation's first taxable year if it filed Form 2553 within 60 days of the ruling. The letter did not decide whether the corporation otherwise met the requirements for an S corporation.

Ruling snapshot

• Question: Could the corporation's late S election apply to its first taxable year?
• Outcome: Approved if Form 2553 was filed within 60 days.
• Key authorities: IRC §§ 1362(b)(5) and 1361(b).

Full text (IRS public release)

INTERNAL REVENUE SERVICE

Number: 200018038
Release Date: 5/5/2000
Index No.: 1362.01-03

CC:DOM:P&SI:2 - PLR-116108-99

February 4, 2000
X =

A =

B =

C =

D =

D1 =

Year 1 =

Dear

This responds to your letter dated August 20, 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 of Year 1. The shareholders of X are A, B, C, and D. X’s Form SS-4, Application for Employer Identification Number, reflects that it was the intent of the shareholders of X to have X treated as an S corporation. A, as X's chairman, represents that X relied on its attorney to prepare the necessary documents for purposes of obtaining S corporation status. However, the Service has no record of a Form 2553, Election by a Small Business Corporation, for X. X filed its tax return using Form 1120S, U.S. Income Tax Return for an S corporation and the shareholders of X filed their respective tax returns based on 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.

-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 first taxable year, Year 1. Accordingly, provided that X makes an election to be an S corporation by filing a 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 ruled upon above, no opinion is expressed concerning the federal tax consequences of the facts described above under any other provisions 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 the power of attorney on file with this office, a copy of this letter is being sent to X.

Sincerely yours,
J. THOMAS HINES
Acting Branch Chief, Branch 2
Office of the Assistant Chief Counsel
(Passthroughs and Special Industries)
Enclosures: 2
Copy of this letter
Copy for § 6110 purposes