PLR 200019031: Late S election accepted after a filing mix-up

Plain-English summary

A corporation's shareholders intended to elect S corporation status for its first tax year. They relied on attorneys to handle the filing, but the attorneys believed a shareholder would prepare Form 2553, so the form was not 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 corporation filed Form 2553 within 60 days of the letter and attached a copy of the ruling. The IRS did not decide whether the corporation met the separate eligibility rules for a small business corporation.

Ruling snapshot

• Question: Could the corporation make a late S election effective for its first tax year?
• Outcome: approved
• Key authorities: IRC §§ 1361(b) and 1362(b)(5).

Full text (IRS public release)

INTERNAL REVENUE SERVICE

Number: 200019031
Release Date: 5/12/2000
Index No.: 1362.01-03

CC:DOM:P&SI:2 - PLR-116753-99

February 15, 2000

X =

A =

B =

C =

D =

D1 =

Year 1 =

Dear
:

This responds to your letter dated October 13, 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. The shareholders of X are A, B, C, and D. B, as X's secretary, represents that the shareholders of X intended for X to elect to be an S corporation from Year 1, its first taxable year. X relied on its attorneys to file the necessary documents for purposes of obtaining S corporation status. However, the attorneys believed that a shareholder of X was going to prepare Form 2553, Election by a Small Business Corporation. Therefore, due to a mis-communication, the Form 2553 was not filed.
-2-

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 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’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