PLR 200022041: Corporation receives relief for late S election

Plain-English summary

A corporation's sole shareholder intended it to be an S corporation from its first tax year and relied on an accountant to file Form 2553. The accountant failed to file on time because of a misunderstanding or mistake. The IRS found reasonable cause for the late election and said it would treat the election as timely if the corporation filed the form within 60 days of the letter. The ruling did not decide whether the corporation otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Can a late Form 2553 take effect for the corporation's first tax year?
• Outcome: Approved if Form 2553 is filed within 60 days of the ruling letter.
• Key authorities: IRC §§ 1362(b)(5) and 1361(b).

Full text (IRS public release)

INTERNAL REVENUE SERVICE

Number: 200022041
Release Date: 6/2/2000
Index No.: 1362.01-03

CC:DOM:P&SI:2 - PLR-119133-99

March 6, 2000

X =

A =

D1 =

Year 1 =

Dear
This responds to a letter dated December 1, 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 sole shareholder of X is A. A, as X's president, represents that A intended for X to elect to be an S corporation for Year 1, its first taxable year. X relied on its accountant to file the necessary documents for purposes of obtaining S corporation status. However, due to a misunderstanding or a mistake the accountant did not file a timely Form 2553, Election by a Small Business Corporation, 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 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’s authorized representative.

Sincerely yours,

H. GRACE KIM
Assist 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