PLR 200018048: Late S election allowed after manager failed to file form

Plain-English summary

A corporation intended to elect S corporation status when it began business. Its tax identification application and shareholder meeting minutes showed that intent, but a manager it relied on did not prepare or file Form 2553. The IRS found reasonable cause for missing the election deadline under section 1362(b)(5). It would treat the election as timely if the corporation filed a completed Form 2553 for its first taxable year within 60 days of the ruling. The IRS did not decide whether the corporation otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Could the corporation make a late S election effective for 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 Department of the Treasury

Index Number: 1362.01-03 Washington, DC 20224

Number: 200018048
Person to Contact:
Release Date: 5/5/2000
Telephone Number:

Refer Reply To:
CC:DOM:P&SI:2 - PLR-100196-00
Date:
February 10, 2000
X =

Y =

A =

D1 =

D2 =

Year 1 =

Dear :

This letter responds to a letter dated December 15, 1999, 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 and began doing business as of D2 of Year 1. A, the president of X, represents that X was intended to be an S corporation effective D2 of Year 1. This intent is evidenced by X’s Form SS-4, Application for Employer Identification Number, dated D1 of Year 1, which indicates that X is an S corporation and by the minutes of a meeting of X dated D2 of Year 1 indicating that X’s shareholders voted to make an "S" election for tax purposes. A further represents that X relied on the general manager of Y, a limited liability company in which X owns an interest, to prepare and file a Form 2553, Election by a Small Business Corporation, for X, but that the general manager of Y failed to prepare and file a Form 2553. Therefore, no Form 2553 was filed for X.

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

-2-

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 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