PLR 200038023: Late S election relief after IRS finds no filed form

Plain-English summary

A corporation's president prepared Form 2553 and gave it to the company's accountant, but the IRS had no record of receiving a timely S election. The corporation had filed its first return as an S corporation. The IRS found reasonable cause and allowed the election to be treated as timely for that first tax year if the corporation filed a completed Form 2553, effective for that year, within 60 days of the letter. The letter instructed it to attach a copy of the ruling to the form. The IRS did not decide whether the corporation otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Could the company's missing S election be treated as timely for its first tax year?
• Outcome: Approved, conditioned on filing Form 2553 within 60 days.
• Key authorities: IRC §§ 1361(b), 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Index Number: 1362.01-03 Washington, DC 20224

Number: 200038023
Person to Contact:
Release Date: 9/22/2000
Telephone Number:

Refer Reply To:
CC:DOM:P&SI:2 - PLR-108994-00
Date:
June 23, 2000

X =

A =

B =

D1 =

Year 1 =

Dear
:
This letter responds to your letter dated April 17, 2000, and subsequent correspondence , written on behalf of X as its authorized representative, 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. A and B are the shareholders of X. A, the president of X, represents that it was intended for X to be an S corporation beginning in Year 1, its first taxable year. A prepared a Form 2553, Election by a Small Business Corporation, for X and gave the Form 2553 to X’s accountant to file. However, the Service has no record of receiving a Form 2553 timely filed for X for Year 1. For Year 1, X filed Form 1120S, U.S. Income Tax Return for 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

-2-
Mr. Mark L. Pugatch
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.

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