PLR 200048031: Corporation receives relief for an unfiled S election

Plain-English summary

A corporation's articles of incorporation stated its intent to comply with the S corporation rules, but no Form 2553 was filed. Its president said the omission arose from miscommunication among the corporation, legal counsel, and an accountant. The IRS found reasonable cause for the missed election under section 1362(b)(5). It will treat the election as timely for the corporation's first taxable year if a completed Form 2553 is filed within 60 days of the letter. The ruling does not decide whether the corporation otherwise qualifies as a small business corporation.

Ruling snapshot

• Question: Can the corporation's unfiled S election be treated as timely 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: 200048031
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-115019-00
Date:
August 31, 2000

X =

A =

D1 =

D2 =

Year 1 =

Dear :

This letter responds to a letter dated July 27, 2000, and subsequent correspondence, submitted by you as X’s authorized representative 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 of Year 1, but did not have any shareholders, assets, or business activities until D2 of Year 1. A, the president of X, represents that X was intended to be an S corporation beginning with the Year 1 taxable year. This intent is evidenced by the Articles of Incorporation of X, which provide that X shall be organized to comply with the provisions of subchapter S of the Code. A further represents that X relied on its legal counsel to file all required documents relevant to incorporation and business organization of X, including a Form 2553, Election by a Small Business Corporation . However, due to miscommunication between X, X’s legal counsel, and X’s accountant, no Form 2553 was filed 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,

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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 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 forwarded 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