PLR 200025045: Late S corporation election accepted for first tax year

Plain-English summary

A corporation and its shareholders intended S corporation treatment from its first tax year and filed later tax returns on that basis. They relied on an attorney to file Form 2553, but the election was missed. The IRS found reasonable cause for the late filing and said the election would be treated as timely for the first year if the corporation filed a completed Form 2553 within 60 days of the ruling letter. The IRS did not determine whether the corporation otherwise met the requirements for S status.

Ruling snapshot

• Question: Can the corporation make a late S election effective for its first tax year?
• Outcome: Approved, conditioned on filing Form 2553 within 60 days.
• Key authorities: IRC § 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Index Number: 1362.01-03 Washington, DC 20224

Number: 200025045
Person to Contact:
Release Date: 6/23/2000
Telephone Number:

Refer Reply To:
CC:DOM:P&SI:2 - PLR-101754-00
Date:
March 28, 2000
X =

A =

B =

C =

D1 =

Year 1 =

Dear
:
This letter responds to a letter dated November 15, 1999, and subsequent correspondence submitted 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, B, and C, the shareholders of X, intended for X to be an S corporation beginning in Year 1, its first taxable year. A, B, and C relied on X’s attorney to prepare and file a Form 2553, Election by a Small Business Corporation, on behalf of X. X’s minutes from its Board of Directors meeting indicate that X intended to be an S corporation beginning in Year 1. However, due to an oversight, the Form 2553 was not timely filed for X's Year 1 taxable year. For Year 1 and all subsequent years, a Form 1120S, U.S. Income Tax Return for an S Corporation, was filed for X. A, B, and C also filed their income tax returns for Year 1 and all subsequent taxable years consistent with the treatment of X as 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, -2-

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. 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,
J THOMAS HINES
Acting Branch Chief, Branch 2
Office of the Assistant Chief Counsel
(Passthroughs and Special Industries)

Enclosures: 2
Copy of this letter
Copy for § 6110 purposes