PLR 200038015: Corporation receives relief for missing S election form

Plain-English summary

A corporation intended to be an S corporation from its first tax year, and its president relied on an attorney and office manager to file Form 2553. The IRS service center had no record of the election, though the corporation filed an S corporation return and the president reported taxes consistently with that status. The IRS found reasonable cause for the failure to make a timely election under section 1362(b)(5). It would treat an election for the first tax year as timely if the corporation filed a completed Form 2553 within 60 days of the letter. The IRS did not determine whether the corporation otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Could the corporation make an effective S election for its first tax year despite the missing Form 2553?
• Outcome: Approved, if Form 2553 is 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

Person to Contact:
Number: 200038015
Telephone Number:
Release Date: 9/22/2000
Refer Reply To:
CC:DOM:P&SI:2 - PLR-105833-00
Date:
June 20, 2000

X =

A =

D1 =

Year 1 =

Dear
:

This letter responds to your letter, dated March 2, 2000, 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 in Year 1. A, as the president of X, represents that X was intended to be an S corporation beginning Year 1, its first taxable year. The Action by Unanimous Written Consent of the Sole Director of X evidences this intent. A relied on X’s attorney and office manager to file a Form 2553, Election by a Small Business Corporation, for X. However, the Service Center has no evidence of a Form 2553 submitted for X. For Year 1 X filed a Form 1120S, U.S. Income Tax Return for an S Corporation and A filed an individual tax return consistent with 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

-2-

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, 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 requesting it.
Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.
In accordance with the power of attorney on file with this office, a copy of this letter is being sent to X.

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