PLR 200050029: Late S election allowed after attorney missed filing deadline

Plain-English summary

A newly incorporated company and its two shareholders intended S corporation status from the first tax year. They relied on an attorney to file Form 2553, but the attorney missed the deadline. The IRS found reasonable cause for the late election and agreed to treat it as timely under section 1362(b)(5), if the company filed a completed Form 2553 with the requested effective date within 60 days of the ruling. The IRS did not otherwise determine whether the company was an S corporation for federal tax purposes.

Ruling snapshot

• Question: Can the company obtain a first year S election despite its attorney's missed filing deadline?
• Outcome: Approved if Form 2553 is filed within 60 days.
• Key authorities: IRC §§ 1362(a), 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200050029
Washington, DC 20224
Release Date: 12/15/2000
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-116300-00
Date:
September 15, 2000

LEGEND:

X
=

A
=

B
=

D1
=

Dear

This letter responds to a letter, dated August 13, 2000, written on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code that X's S corporation status will be effective as of the taxable year beginning D1.

FACTS

According to the information submitted, X was incorporated on D1 and it was decided that X would be an S corporation. A and B, the shareholders of X, relied on an attorney to file X's Form 2553, Election by a Small Business Corporation, with an effective date of D1. The attorney, however, failed to timely file X's Form 2553.

X requests a ruling that it will be recognized as an S corporation effective for the taxable year beginning D1 under § 1362(b)(5).

LAW AND ANALYSIS

Section 1362(a) provides that a small business corporation may elect to be an S corporation.

Section 1362(b) provides when an S election will be effective. If an S election is made within the first two and one half months of a corporation's taxable year, then that corporation will be treated as an S corporation beginning the year in which the election is made. If an S election is made after the first two and one half months of a
PLR-116300-00
2

corporation’s taxable year, then that corporation will not be treated as an S corporation until the taxable year after the year in which the S election is made.

Section 1362(b)(5) provides that if: (1) an election under § 1362(a) is made for any taxable year after the date prescribed by § 1362 for making the election or no § 1362(a) election is made for any taxable year, and (2) the Secretary determines that there was reasonable cause for the failure to timely make the election, then the Secretary may treat the election as timely made for such taxable year.

CONCLUSIONS

Based solely on the facts submitted and representations made, we conclude that X has established reasonable cause for not making a timely election and is eligible for relief under § 1362(b)(5). Accordingly, if X makes an election to be an S corporation by filing with the appropriate Service Center a completed Form 2553, containing an effective date of D1 for the election, within 60 days following the date of this letter, then such election will be treated as timely made. A copy of this letter should be attached to the Form 2553 filed with the Service Center. A copy is enclosed for that purpose.

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. Specifically, no opinion is expressed concerning whether X is an S corporation for federal tax purposes.

The ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for ruling, it is subject to verification on examination.

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.

Under a power of attorney on file with this office, we are sending a copy of this letter to X.

Sincerely yours,
Robert G. Honigman
Acting Assistant to the Chief, Branch 3
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)
Enclosures (2)
Copy of this letter
Copy for § 6110 purposes