PLR 200050033: Missed S election allowed after attorney and accountant misunderstanding

Plain-English summary

A company's sole shareholder intended S corporation status from its first tax year and told the company's attorney so. The attorney mistakenly thought the accountant would prepare and file Form 2553, so no election form was filed. The IRS found reasonable cause for the failure and allowed the election to be treated as timely under section 1362(b)(5), provided the company filed a completed Form 2553 within 60 days of the ruling. The IRS did not determine whether the company otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Can the company receive relief for its unfiled first year S election?
• Outcome: Approved if a completed Form 2553 is filed within 60 days.
• Key authorities: IRC § 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Number: 200050033
Washington, DC 20224
Release Date: 12/15/2000
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2 - PLR-116266-00
Date:
September 15, 2000
X =

A =

D1 =

Year 1 =

Dear :

This letter responds to a letter dated June 19, 2000, and subsequent correspondence submitted by 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. A, the president and sole shareholder of X, represents that X was intended to be an S corporation effective for the Year 1 taxable year. A had previously owned another S corporation, and instructed X’s attorney that X should also be formed as an S corporation. However, X’s attorney mistakenly believed that X’s accountant would prepare and file a Form 2553, Election by a Small Business Corporation, for X. Therefore, no Form 2553 was prepared or 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.

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 -2-

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’s authorized representative.

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