PLR 200051013: Corporation may file late S election for its first year

Plain-English summary

A corporation and its shareholders relied on an attorney to file an S corporation election, but the IRS had no record of a timely Form 2553. They had filed tax returns consistently with S status from the corporation's first year. The IRS found reasonable cause for the missed election under IRC § 1362(b)(5). It would treat the election as timely for that year if the corporation filed a completed Form 2553 within 60 days of the letter. The IRS did not decide whether the corporation otherwise qualified for S status.

Ruling snapshot

• Question: May the corporation make an S election effective for its first tax year after the deadline?
• Outcome: Approved, subject to filing Form 2553 within 60 days.
• Key authorities: IRC §§ 1362(a), 1362(b)(5), 1361(b).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200051013
Washington, DC 20224
Release: 12/22/2000
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2 - PLR-109909-00
Date:
X = September 7, 2000

A =

B =

C =

D1 =

Year 1 =
Dear
:
This letter responds to a letter dated April 20, 2000, and subsequent correspondence, written 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 of Year 1. A, B, and C are the shareholders of X. A, the president of X, represents that it was intended for X to be an S corporation beginning in Year 1, its first taxable year. The shareholders of X relied on X’s attorney to prepare and file an election for X to be an S corporation. However, the Service has no record of receiving a Form 2553, Election by a Small Business Corporation, timely filed for X for Year 1. For Year 1 and all subsequent years, X filed Form 1120S, U.S. Income Tax Return for an S Corporation, and X’s shareholders filed Form 1040, U.S. Individual Income Tax Return, 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,

-2-
Mr. Charles W. Ferdon
we conclude that X has established reasonable cause for failing to make a timely election to be an S corporation for X’s first 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 sent to X’s 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