PLR 200033039: Late S corporation election accepted for reasonable cause

Plain-English summary

A corporation intended to be taxed as an S corporation from its first year with a shareholder and operations. Its legal and accounting advisers misunderstood who would file Form 2553, so no election was filed, although the corporation and its shareholder filed returns consistent with S corporation treatment. The IRS found reasonable cause for the missed election under section 1362(b)(5). It would treat the election as timely if the corporation filed a completed Form 2553 within 60 days of the letter. The IRS did not decide whether the corporation otherwise met the small business corporation requirements.

Ruling snapshot

• Question: Could a missed S corporation election be treated as timely?
• 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: 200033039
Person to Contact:
Release Date: 8/18/2000
Telephone Number:

Refer Reply To:
CC:DOM:P&SI:2 - PLR-106522-00
Date:
May 22, 2000
X =

A =

D1 =

Year 1 =

Dear
:

This letter responds to a letter dated March 10, 2000, and subsequent correspondence submitted by X’s authorized representative 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, but did not have any shareholders, assets, or business operations until Year 1. A, the president and sole shareholder of X, represents that X was intended to be an S corporation beginning with its Year 1 taxable year. A further represents that X relied on its legal and accounting advisers to file any form necessary for X to be an S corporation. However, due to confusion between X’s legal and accounting advisers as to who was responsible for preparing and filing a Form 2553, Election by a Small Business Corporation, for X, no Form 2553 was filed for X. For Year 1, X and A filed returns consistent with the treatment of X as 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 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,

-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 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 forwarded 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