PLR 200026019: Late S corporation election allowed after filing miscommunication

Plain-English summary

The shareholders of a new corporation intended to elect S corporation status for its first tax year. A miscommunication between the corporation's attorney and accountant left Form 2553 unfiled. The IRS found reasonable cause under section 1362(b)(5) and said the election would be treated as timely if the corporation filed a completed form within 60 days of the letter, effective for that first year. The letter expressly leaves open whether the corporation meets the section 1361(b) requirements for a small business corporation.

Ruling snapshot

• Question: Can the corporation's missed S election be treated as timely for its first taxable year?
• Outcome: Approved, conditional on filing Form 2553 within 60 days of the letter.
• Key authorities: IRC §§ 1362(b)(5) and 1361(b)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Index Number: 1362.01-03 Washington, DC 20224

Number: 200026019
Person to Contact:
Release Date: 6/30/2000
Telephone Number:

Refer Reply To:
CC:DOM:P&SI:2 - PLR-102984-00
Date:
April 3, 2000

X =

A =

B =

D1 =

Year 1 =

Dear
:

This letter responds to a letter dated December 17, 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 and B, the shareholders of X, intended for X to be an S corporation beginning in Year 1, its first taxable year. A and B relied on X’s attorney to prepare and file a Form 2553, Election by a Small Business Corporation, on behalf of X. However, due to a miscommunication between X’s attorney and X’s accountant, a Form 2553 was not filed for X's first taxable year.

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.
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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