PLR 200043040: Late S corporation election accepted after preparer filing lapse

Plain-English summary

A corporation's sole shareholder intended S corporation status from its first taxable year and relied on a preparer to file Form 2553. The IRS service center had no record of the form, although the corporation and shareholder had filed returns consistently with S status. The IRS found reasonable cause for the missed election under section 1362(b)(5). It allowed the election to be treated as timely for the first year if the corporation filed a completed Form 2553 with the stated effective date within 60 days of the ruling and attached a copy of the letter. The IRS did not decide whether the corporation otherwise met the small business corporation requirements.

Ruling snapshot

• Question: Can the missing Form 2553 election be treated as timely from the corporation's first taxable year?
• Outcome: Approved, contingent 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

Number: 200043040
Washington, DC 20224
Release Date: 10/27/2000
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2 - PLR-109206-00
Date:
July 31, 2000

X =

A =

Preparer =

D1 =

Year 1 =

Dear
:

This letter responds to a letter, dated February 26, 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 in Year 1. A, as the sole shareholder and president of X, represents that X was intended to be an S corporation beginning Year 1, its first taxable year. An invoice from Preparer for incorporation and other services on behalf of X evidences this intent. A relied on Preparer to prepare and file a Form 2553, Election by a Small Business Corporation, with the Internal Revenue Service. However, X’s service center has no record of a Form 2553 for X. X has filed all its returns on a Form 1120S, U.S. Income Tax Return for an S Corporation, and A has filed all A’s returns 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 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

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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 your authorized representative.

Sincerely yours,
H. GRACE KIM
Assistant to the Chief, Branch 2
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)
Enclosures: 2
Copy of this letter
Copy for § 6110 purposes