PLR 200029016: Late S corporation election accepted for first tax year

Plain-English summary

A corporation intended to elect S corporation status from its first tax year. A shareholder relied on the corporation's attorney to file Form 2553, but the IRS had no record of a timely filing. The corporation and its shareholders nevertheless filed returns consistent with S status. The IRS found reasonable cause for the missed election and said a new Form 2553 would be treated as timely if filed within 60 days with a copy of the ruling. It did not decide whether the corporation otherwise met the small business corporation requirements.

Ruling snapshot

• Question: May the corporation's S election be treated as timely for its first tax year?
• Outcome: Approved, if Form 2553 is filed within 60 days.
• 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

Number: 200029016
Person to Contact:
Release Date: 7/21/2000
Telephone Number:

Refer Reply To:
CC:DOM:P&SI:2 - PLR-119411-99
Date:
April 14, 2000

X =

A =

D1 =

Year 1 =

Dear
:
This letter responds to a letter dated November 19, 1999, and subsequent correspondence , written 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, the president and a shareholder of X, represents that it was intended for X to be an S corporation beginning in Year 1, its first taxable year. A relied on X’s attorney to prepare and file a Form 2553, Election by a Small Business Corporation, on behalf of X. However, the Service has no record of receiving a Form 2553 timely filed for X for Year 1. For Year 1 and all subsequent years, X filed Form 1120S, U.S. Income Tax Return for an S Corporation , and X’s shareholders filed Form 1040, U.S. Individual Income Tax Return, 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 -2-
Mr. Matthew Welsh
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,

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