PLR 200041019: Late S corporation election receives conditional relief

Plain-English summary

A corporation intended to elect S corporation status for its first tax year, but its attorney failed to file Form 2553 on time. The IRS found reasonable cause for the late election under section 1362(b)(5). It ruled that the election would be treated as timely if the corporation filed a completed Form 2553 within 60 days of the letter. The IRS did not decide whether the corporation otherwise qualified as a small business corporation under section 1361(b).

Ruling snapshot

• Question: Could the corporation make a late S corporation election effective for its first tax year?
• Outcome: Approved, if Form 2553 was filed within 60 days of the ruling letter.
• Key authorities: IRC §§ 1362(b)(5), 1361(b).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Index Number: 1362.01-03 Washington, DC 20224

Person to Contact:
Number: 200041019
Telephone Number:
Release Date: 10/13/2000
Refer Reply To:
CC:PSI:2 - PLR-105958-00
Date:
July 13, 2000

X =

A =

D1 =

D2 =

Year 1 =

Dear
:
This letter responds to your letter, dated March 8, 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 formed on D1 in Year 1. A, as the president of X, represents that X was intended to be an S corporation beginning D1 of Year 1, its first taxable year. A relied on X’s attorney to obtain S corporation status for X. The Organizational Minutes of D2 state that X is an S corporation. However, X’s attorney failed to timely file a Form 2553, Election by a Small Business Corporation, with the Internal Revenue Service. A represents that X and its shareholders will file consistent with X being an S corporation beginning in Year 1.

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.

Sincerely yours,
J. THOMAS HINES
Acting Branch Chief Branch 2
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures: 2
Copy of this letter
Copy for § 6110 purposes