PLR 200038036: Late S election allowed after attorney missed filing

Plain-English summary

A business owner intended S corporation treatment when incorporating, but the attorney handling the incorporation did not file Form 2553. The IRS found reasonable cause for the missed election under section 1362(b)(5). It allowed the election to take effect for the corporation's first tax year if the corporation filed a completed Form 2553 within 60 days after the ruling letter and attached a copy of the letter. The IRS did not determine whether the corporation otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Could the corporation's late S election take effect for its first tax year?
• Outcome: Approved, if a completed Form 2553 was filed within 60 days of the letter.
• 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

Person to Contact:
Number: 200038036
Telephone Number:
Release Date: 9/22/2000
Refer Reply To:
CC:DOM:P&SI:2 - PLR-109914-00
Date:
June 26, 2000

X =

A =

D1 =

Year 1 =

Dear
:
This letter responds to a letter, dated April 13, 2000, and subsequent correspondence, submitted 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 was incorporated on D1 of Year 1. A, as the sole shareholder and president of X, represents that A intended to form an S corporation when A decided to incorporate A’s business. The Minutes of Organizational Meeting of X evidence this intent. A relied on X’s attorney to handle the whole incorporation process of X. However, X’s attorney failed to file a Form 2553, Election by a Small Business Corporation, with the Internal Revenue Service.

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

-2-

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’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