PLR 200047031: Late S election allowed after mistaken state registration

Plain-English summary

A corporation's sole shareholder believed that registering with the state was enough to obtain S corporation status, so the company did not file Form 2553. It had filed tax returns consistent with S status. The IRS found reasonable cause for the missing election and allowed it for the company's first tax year if Form 2553 was filed within 60 days of the ruling. The IRS did not decide whether the company otherwise qualified as a small business corporation.

Ruling snapshot

• Question: May the missing S election be treated as timely for the company's first year?
• Outcome: Approved, subject to 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: 200047031
Washington, DC 20224
Release Date: 11/24/2000
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2 - PLR-111974-00
Date:
X =
August 25, 2000
A =

D1 =

Year 1 =

State =
Dear
:

This letter responds to a letter dated December 15, 1999, and subsequent correspondence , submitted on behalf of X by X’s 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 is the sole shareholder of X. A, the president of X, represents that it was intended for X to be an S corporation since inception. A, as X’s sole shareholder, believed that registering with State was all that was necessary in order to be an S corporation. A was unaware of the requirement to file Form 2553, Election by a Small Business Corporation. Therefore, X failed to file a Form 2553. A represents that when filing its income tax returns, X filed Form 1120S, U.S. Income Tax Return for an S Corporation , and X’s shareholders filed Form 1040, U.S. Individual Income Tax Return, 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 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