PLR 200051030: Corporation receives relief for missing S election

Plain-English summary

A corporation intended to be an S corporation from its first tax year, and its sole shareholder believed a signed Form 2553 had been sent to the IRS. The service center had no record of the election, although the corporation and shareholder filed returns consistent with S status. The IRS found reasonable cause for the missing election under IRC § 1362(b)(5). It would treat the election as timely for the first year if the corporation filed a completed Form 2553 within 60 days of the letter. The IRS did not determine whether the corporation met the other eligibility requirements for S status.

Ruling snapshot

• Question: Can a missing S corporation election be treated as timely for the first tax year?
• Outcome: Approved, if the corporation files 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: 200051030
Washington, DC 20224
Release Date: 12/22/2000
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2 - PLR-106932-00
Date:
September 22,2000

X =

A =

D1 =

Year 1 =

Dear
:
This letter responds to a letter, dated March 20, 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 sole shareholder and president of X, represents that X was intended to be an S corporation beginning Year 1, its first taxable year. The Minutes of First Meeting of Board of Directors of X evidence this intent. A represents that a signed Form 2553, Election by a Small Business Corporation, for X was forwarded to X’s attorney to file with the Internal Revenue Service. However, the Service Center has no evidence 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 A filed an individual 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, 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

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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