PLR 200035023: Corporation may file late S election for its first tax year

Plain-English summary

A corporation's shareholders intended S corporation treatment from its first tax year and relied on an attorney to file the needed forms. The S election was not filed on time, though the company's minutes and later tax returns reflected its intended status. The IRS found reasonable cause for the missed deadline under section 1362(b)(5). It ruled that an election for the first year would be treated as timely if the corporation filed a completed Form 2553 within 60 days of the letter and attached a copy. The IRS did not decide whether the corporation otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Can the corporation's late S election take effect for its first tax year?
• Outcome: Approved, if a completed Form 2553 is filed within 60 days with the ruling attached.
• Key authorities: IRC § 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Index Number: 1362.01-03 Washington, DC 20224 Number: 200035023 Release Date: 9/1/2000 Person to Contact:

Telephone Number:

Refer Reply To:
CC:DOM:P&SI:2 - PLR-103035-00
Date:
X = June 1, 2000

A =

B =

C =

D =

E =

D1 =

Year 1 =

Year 2 =
Year 3 =

Year 4 =
Dear :
This letter responds to a letter dated January 27, 2000, and subsequent correspondence, written 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 incorporated on D1 of Year 1. A, B, C, and D, the shareholders of X, intended for X to be an S corporation beginning in Year 1, its first taxable year. A represents that X relied on its attorney to file all the necessary forms for X to become an S corporation in Year 1. However, a Form 2553, Election by a Small Business Corporation, on behalf of X, was not timely filed for Year 1. X’s corporate minutes reflect X’s intent to be an S corporation. For Year 1, Year 2, Year 3, and Year 4, X filed Form 1120S, U.S. Income Tax Return for an S Corporation , and A, B, C, D, and E filed Form 1040, U.S. Individual Income Tax Return, consistent with X being an S corporation.

-2-
Ms. Katherine L. Allen

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. 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 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 sent to X’s authorized representative.

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