PLR 200046032: Late S corporation election accepted after attorney failed to file it

Plain-English summary

A corporation's shareholders intended to elect S corporation status from its first tax year and relied on their attorney to file Form 2553. The attorney failed to file it. The IRS found reasonable cause for the missed deadline under section 1362(b)(5). It ruled that the election would be treated as timely for the first tax year if the corporation filed a completed Form 2553 within 60 days of the letter and attached a copy of the ruling. The IRS did not decide whether the corporation otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Can an S corporation election be treated as timely when the attorney failed to file it?
• Outcome: Approved conditionally: file Form 2553 within 60 days of the letter.
• Key authorities: IRC § 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Number: 200046032
Washington, DC 20224
Release Date: 11/17/2000
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2 - PLR-112759-00
Date:
August 23, 2000

X =

A =

B =

D1 =

Year 1 =

Dear :

This letter responds to a letter dated June 7, 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 and B are the shareholders of X. A, the president of X, represents that, after discussing with X’s accountant, A and B decided that X should elect to be an S corporation. Thus, it was intended for X to be an S corporation from inception. The shareholders of X relied on X’s attorney to prepare and file a Form 2553, Election by a Small Business Corporation. However, X’s attorney failed to file a Form 2553 for X.

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-
Dr. Howard Novie

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’s 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