PLR 200048036: Corporation receives relief for a missed S election

Plain-English summary

A corporation intended to elect S corporation status for its first taxable year, and its board recorded that decision. Its attorney failed to file Form 2553, so no election was made. The IRS found reasonable cause for the missed election under section 1362(b)(5). If the corporation files a completed Form 2553 within 60 days of the letter, the IRS will treat the election as timely for that year. The ruling does not decide whether the corporation otherwise qualifies as a small business corporation under section 1361(b).

Ruling snapshot

• Question: Can the corporation's missed S election be treated as timely?
• 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: 200048036
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-114202-00
Date:
August 31, 2000
X =

A =

D1 =

D2 =

Year 1 =

Dear :

This letter responds to a letter dated July 18, 2000, 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 minutes of the organizational meeting of X’s Board of Directors, which contain a resolution by the Board that X should elect to be treated as an S corporation. A further represents that X relied on its attorney to file any necessary election in order for X to be an S corporation. However, X’s attorney failed to file a Form 2553, Election by a Small Business Corporation, for X. Therefore, 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, 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-

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