PLR 200029045: Missed first-year S election receives conditional relief

Plain-English summary

A newly formed corporation intended to elect S status from its first tax year. Its president relied on an attorney and accountant to prepare Form 2553, but each believed the other would do it, so no election was filed. The corporation and its president filed returns consistent with S status. The IRS found reasonable cause for the missed election and said it would be treated as timely if the corporation filed a completed Form 2553 within 60 days of the ruling. The IRS did not decide whether the corporation otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Can the corporation receive relief for its unfiled first-year S election?
• Outcome: Approved, conditional on filing 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



                                  Person to Contact:
Number: 200029045
                                  Telephone Number:
Release Date: 7/21/2000
                                  Refer Reply To:
                                  CC:DOM:P&SI:2 - PLR-105134-00
                                  Date:
                                  April 24, 2000


X          =


A          =


D1         =

Year 1     =


Dear            :
     This letter responds to a letter, dated February 18, 2000,
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 in Year 1. A, as the president of X, represents that X was
intended to be an S corporation beginning Year 1, its first
taxable year, and that A relied on X’s attorney and X’s
accountant to prepare and file a Form 2553, Election by a Small
Business Corporation, for X. However, the attorney and the
accountant each thought the other would prepare the form.
Therefore, no Form 2553 was prepared and filed for X. For Year 1
X filed a Form 1120S, U.S. Income Tax Return for an S
Corporation, and A filed an individual 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
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

                                -2-

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
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 requesting it.
Section 6110(k)(3) of the Code provides that it may not be used
or cited as precedent.
     In accordance with the power of attorney on file with this
office, a copy of this letter is being sent to your 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