PLR 200034016: Late S corporation election allowed after filing misunderstanding

Plain-English summary

A corporation intended S corporation status in its first tax year and filed an S corporation return. Its president believed the attorney had filed Form 2553, while the attorney believed the corporation had filed it. The service center later said no election form was on file. The IRS found reasonable cause for the late election and said it would treat the first-year election as timely if the corporation filed a completed Form 2553 within 60 days of the ruling letter. It did not decide whether the corporation otherwise qualified to make an S election.

Ruling snapshot

• Question: Could the missing first-year S corporation election be treated as timely?
• Outcome: Approved if Form 2553 was filed within 60 days of the letter.
• Key authorities: IRC §§ 1361(b), 1362(a), 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Index Number: 1362.01-03 Washington, DC 20224

Number: 200034016
Person to Contact:
Release Date: 8/25/2000 Telephone Number:

Refer Reply To:
CC:DOM:P&SI:2-PLR-104524-00
Date:
May 25, 2000

X =

A =

Date 1 =

Year 1 =
ea

Dear :

This letter responds to your January 24, 2000 letter and subsequent correspondence, 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 corporate minutes indicate that X and its shareholders intended X to be an S corporation for Year 1. A, X’s president, represents that A believed that X’s attorney had sent the necessary paperwork. However, the attorney believed that X had sent the necessary paperwork. Based upon the belief that Form 2553, Election by a Small Business Corporation, had been filed, X filed a Form 1120S (U.S. Income Tax Return for an S Corporation) for Year 1. Subsequently, X received a letter from its service center indicating that it did not have a Form 2553 on file 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, 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.

• 2 -

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 Year 1, 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, 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.

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