PLR 200021033: Late S election accepted for corporation's first tax year

Plain-English summary

A corporation's sole shareholder said an S election form had been sent to the corporation's accountant, but the IRS had no record of a timely filing for its first tax year. The corporation and shareholder had filed returns consistent with S corporation status. The IRS found reasonable cause for the missed election and said it would be treated as timely if the corporation filed a completed Form 2553, effective for that first year, within 60 days of the letter. The IRS did not decide whether the corporation otherwise qualified as a small business corporation under IRC § 1361(b).

Ruling snapshot

• Question: Can the corporation's S election be treated as timely for its first tax year?
• Outcome: Approved, if Form 2553 is filed within 60 days.
• Key authorities: IRC §§ 1361(b) and 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Index Number: 1362.01-03 Washington, DC 20224

Number: 200021033
Person to Contact:
Release Date: 5/26/2000
Telephone Number:

Refer Reply To:
CC:DOM:P&SI:2 - PLR-119550-99
Date:
February 23, 2000

X =

A =

D1 =

Year 1 =

Dear
:
This letter responds to a letter dated November 19, 1999, and subsequent correspondence , written on behalf of X by its authorized representative, 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 sole shareholder of X, intended for X to be an S corporation beginning in Year 1, its first taxable year. A represents that A signed and forwarded a Form 2553, Election by a Small Business Corporation, to X’s accountant. However, the Service has no record of receiving a Form 2553 timely filed for X for Year 1. For Year 1 and all subsequent years, X filed Form 1120S, U.S. Income Tax Return for an S Corporation , and A 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 -2-
Mr. Steven C. Kaufman
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. 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 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