PLR 200029052: Late S corporation election accepted after filing failure

Plain-English summary

A corporation intended to elect S status for a tax year but its attorney failed to file Form 2553. The corporation believed the election had been filed and submitted an S corporation return before learning that the IRS had no election on record. The IRS found reasonable cause for the missed deadline under section 1362(b)(5). It would treat the election as timely if the corporation filed a completed Form 2553, effective for that year, within 60 days of the ruling. The IRS did not decide whether the corporation otherwise met the requirements for S status.

Ruling snapshot

• Question: Can the missed Form 2553 deadline be excused for the corporation's intended 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



Number: 200029052                 Person to Contact:
Release Date: 7/21/2000           Telephone Number:

                                  Refer Reply To:
                                  CC:DOM:P&SI:2-PLR-119977-99
                                  Date:
                                          April 26, 2000




X         =


A         =


Date 1    =

Year 1    =

Year 2    =

Dear            :

     This letter responds to an October 19, 1999 letter and
subsequent correspondence that X’s authorized representative
submitted on behalf of X concerning relief under § 1362(b)(5) of
the Internal Revenue Code.

     The information submitted states that X incorporated on Date
1 of Year 1. X’s accountant advised X to be an S corporation for
Year 2. X relied on X’s attorney to file a Form 2553 (Election
by a Small Business Corporation) for X for Year 2. However, X’s
attorney failed to file the form. Believing that a Form 2553 had
been filed, X filed a Form 1120S (U.S. Income Tax Return for an S
Corporation) for Year 2. Subsequently, X discovered that Form
2553 had not been filed when it received a letter from its
service center indicating that it had no record of a Form 2553
having been filed for X.

     Section 1362(b)(5) of the Code provides that if-- (A) an
election under § 1362(a) for any taxable year is made 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 Year 2
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 Year 2, within 60 days
following the date of this letter, then such election will be
treated as timely made for X’s Year 2 taxable year. A copy of
this letter should be attached to the Form 2553.

     Except as specifically set forth above, we express no
opinion 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, a copy of this letter is being sent to X’s authorized
representative.


                                Sincerely yours,


                                H. GRACE KIM
                                Assistant to Chief
                                  Branch 2
                                Office of the Assistant
                                  Chief Counsel
                                (Passthroughs and Special
                                  Industries)

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