PLR 200021053: Relief for a missed S corporation election

Plain-English summary

A corporation intended to elect S corporation status from its first tax year and relied on its former accountant to file Form 2553. The IRS service center had no record of the form, although the corporation and its sole shareholder filed returns consistent with S corporation status. The IRS found reasonable cause for the late election under section 1362(b)(5). It ruled that an election effective for the first tax year would be treated as timely if the corporation filed Form 2553 within 60 days of the letter. The IRS did not decide whether the corporation otherwise met the requirements for a small business corporation.

Ruling snapshot

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

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Index Number: 1362.01-03 Washington, DC 20224

Person to Contact:
Number: 200021053
Telephone Number:
Release Date: 5/26/2000
Refer Reply To:
CC:DOM:P&SI:2 - PLR-118583-99
Date:
February 29, 2000

X =

A =

D1 =

Year 1 =

Dear
:
This letter responds to your letter, dated October 9, 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. A is the sole shareholder and president of X. A represents that X was intended to be an S corporation beginning Year 1, its first taxable year. X relied on its former accountant to file a Form 2553, Election by a Small Business Corporation, with the Internal Revenue Service. However, the Service Center does not have a record of a Form 2553 for X for Year 1. For Year 1 and all subsequent years X has filed a Form 1120S, U.S. Income Tax Return for an S Corporation, and A has filed individual tax returns 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 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 -2-

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 requesting it.
Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.
In accordance with the power of attorney on file with this office, a copy of this letter is being sent to X.

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