PLR 200050042: Late S corporation election allowed when IRS had no Form 2553 record

Plain-English summary

A corporation said it had mailed a timely Form 2553 to elect S corporation status from its first tax year, but the IRS service center had no record of the form. The corporation and its shareholders had consistently filed returns as though the election was in effect. The IRS found reasonable cause for the missing election and agreed to treat it as timely if the corporation filed a completed Form 2553 within 60 days of the ruling. The IRS did not decide whether the corporation otherwise met the requirements for S status.

Ruling snapshot

• Question: Can a missing S corporation election be treated as timely for the corporation's first tax year?
• Outcome: Approved if a completed 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: 200050042
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-106604-00
Date:
September 18,2000

X =

A =

D1 =

Year 1 =

Dear
:

This letter responds to a letter, dated February 21, 2000, and subsequent correspondence, submitted on behalf of X by its authorized representative, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.
The information submitted states that X was incorporated on D1 in Year 1. A, as the president of X, represents that X was intended to be an S corporation beginning Year 1, its first taxable year. The Consent in Lieu of the Organizational Meeting of X evidences this intent. A represents that a Form 2553, Election by a Small Business Corporation, had been timely signed and mailed to the Internal Revenue Service. However, X’s Service Center has no record of a Form 2553 for X. For Year 1, and all subsequent years, X filed a Form 1120S, U.S. Income Tax Return for an S Corporation and the shareholders have filed individual tax returns consistent with X being 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 -2-

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 requesting it.
Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.
In accordance with the power of attorney on file with this office, a copy of this letter is being sent 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