PLR 200044029: Late S corporation election allowed after missed signature

Plain-English summary

A corporation intended to elect S corporation status for its first taxable year. Its attorney prepared Form 2553 on time, but a secretary did not send the form to the sole shareholder for signature, so no election was filed. The IRS found reasonable cause for the missed deadline under section 1362(b)(5). It allowed the election to be treated as timely if the corporation filed a completed Form 2553 effective for that first year 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's missed S election deadline be excused?
• Outcome: Approved, conditioned on filing Form 2553 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 Number: 200044029 Release Date: 11/3/2000 Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2 - PLR-111270-00
Date:
August 8, 2000

X =

A =

D1 =

D2 =

Year 1 =

Dear :
This letter responds to a letter dated May 31, 2000, and subsequent correspondence, written 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. X had no assets or shareholders and did not begin doing business until D2 of Year 1. A is the sole shareholder of X. A, who is also the president of X, represents that it was intended for X to be an S corporation beginning in its first taxable year, Year 1. X’s attorney timely prepared a Form 2553, Election by a Small Business Corporation. However, X’s secretary failed to forward the Form 2553 to A for A to sign. Therefore, a Form 2553 was not filed for X for 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.

-2-
Mr. Steven Yarn

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’s 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