PLR 200023037: Late S election allowed after attorney omitted Form 2553

Plain-English summary

A corporation's shareholders agreed to operate it as an S corporation and relied on an attorney to file the necessary forms. The attorney did not prepare or file Form 2553, although the corporation and its shareholders filed tax returns as if the S election were in effect. The IRS found reasonable cause for the missing election under IRC § 1362(b)(5). It agreed to treat the election as timely for the corporation's first tax year if a completed Form 2553 was filed 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: Could the corporation obtain relief for its unfiled S corporation election?
• Outcome: Approved conditionally, if it filed Form 2553 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: 200023037
Person to Contact:
Release Date: 6/9/2000
Telephone Number:

Refer Reply To:
CC:DOM:P&SI:2 - PLR-119442-99
Date:
March 13, 2000
X =

A =

D1 =

Year 1 =

Dear
:

This letter responds to a letter dated September 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. A, the president of X, represents that the shareholders of X agreed to form X as an S corporation. A further represents that X relied on X’s attorney to file all of the relevant forms and elections for X to operate as an S corporation. However, X’s attorney failed to prepare and file a Form 2553, Election by a Small Business Corporation, for X. Therefore, no Form 2553 was filed for X. X and the shareholders of X have timely filed their tax returns as though X was 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 taxable year. Accordingly, provided that X makes an election to -2-

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