PLR 200033028: reasonable cause permits a late S corporation election if Form 2553 is filed within 60 days

Plain-English summary

A corporation intended to elect S corporation status and filed its tax return, along with its shareholders' returns, as though the election had been made. The Service had no record of Form 2553, and the corporation's representative said it had relied on its attorney to prepare the documents. The IRS found reasonable cause under section 1362(b)(5) and will treat the election as timely for the first taxable year if the corporation files Form 2553 with the appropriate service center within 60 days of the letter. The letter gives no opinion on whether the corporation otherwise qualified as a small business corporation under section 1361(b).

Ruling snapshot

• Question: May a corporation that intended to elect S status but did not timely file Form 2553 receive relief under section 1362(b)(5)?
• Outcome: Approved, conditionally. Reasonable cause was established, and the election will be treated as timely for the first taxable year if Form 2553 is filed within 60 days with a copy of the letter attached.
• Key authorities: IRC §§ 1362(a), 1362(b), 1362(b)(5), and 1361(b).

Full text (IRS public release)

INTERNAL REVENUE SERVICE

Number: 200033028
Release Date: 8/18/2000
Index No.: 1362.01-03




                                   CC:DOM:P&SI:2 - PLR-101666-00

                                   May 18, 2000

X        =

A        =

B         =

D1       =

Year 1    =

Dear

     This responds to your letter dated December 13, 1999, and
subsequent correspondence, submitted on behalf of X, 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. The shareholders of X are A, and B. A, as X's
president, represents that X relied on its attorney to prepare
the necessary documents for purposes of obtaining S corporation
status. However, the Service has no record of a Form 2553,
Election by a Small Business Corporation, for X. X filed its tax
return using Form 1120S, U.S. Income Tax Return for an S
corporation and the shareholders of X filed their respective tax
returns based on 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
to make a timely election to be an S corporation for X's first
taxable year, Year 1. Accordingly, provided that X makes an
election to be an S corporation by filing a Form 2553 with the
appropriate service center effective for its Year 1 taxable year,
                                -2-

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 ruled upon above, no opinion is
expressed concerning the federal tax consequences of the facts
described above under any other provisions 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.
                           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