PLR 200048024: Corporation may file late S election after counsel withdrew

Plain-English summary

A corporation's sole shareholder wanted S corporation status from its first taxable year and told its attorneys at formation. The attorneys later ended their representation because of a conflict of interest, and Form 2553 was not filed on time. The shareholder represented that both the corporation and shareholder filed returns consistent with S corporation treatment. The IRS found reasonable cause for the missed election and will treat it as timely if the corporation files a completed Form 2553 within 60 days of the letter. The ruling does not decide whether the corporation otherwise qualifies under section 1361(b).

Ruling snapshot

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

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200048024
Washington, DC 20224
Release Date: 12/1/2000
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC::PSI:2-PLR-113413-00
Date:
August 30, 2000

X =

A =

D1 =

Year 1 =

Dear :

This responds to a letter dated July 6, 2000, and subsequent correspondence, written on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated on D1. A, X's sole shareholder, represents that he intended for X to be treated as an S corporation for federal tax purposes as of Year 1, X's first taxable year. At the time of incorporation, A informed X’s attorneys of his interest in X being treated as an S corporation for federal tax purposes. However, after completing X’s formation, X’s attorneys were forced to terminate the attorney-client relationship with X due to a conflict of interest with an existing client. Consequently, a timely Form 2553, Election by a Small Business Corporation, was not filed for X for Year 1.

A represents that X and A filed their tax returns for Year 1 and all subsequent years consistent with the treatment of X as 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

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PLR-113413-00

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.

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