PLR 200105053: Late S election accepted after corporation filed an S return

Plain-English summary

Four shareholders intended their corporation to be an S corporation from its first tax year. A business loan agreement and a filed S corporation return reflected that intent, but the shareholders' attorney did not timely file Form 2553. The IRS found reasonable cause for the late election. It would treat the election as timely from the corporation's incorporation date if a completed Form 2553 was filed within 60 days of the ruling. The IRS did not decide whether the corporation otherwise qualified for S status.

Ruling snapshot

• Question: Can the corporation's missed S election deadline be excused for its first tax year?
• Outcome: Approved if it files a completed election within 60 days of the letter.
• Key authorities: IRC §§ 1361(b), 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Number: 200105053
Washington, DC 20224
Release Date: 2/2/2001
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2 - PLR-108305-00
Date:
November 3, 2000

X =

A =

B =

C =

D =

D1 =

Year 1 =

Dear :
This letter responds to a letter, dated March 31, 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, B, C, and D, as the shareholders of X, represent that X was intended to be an S corporation beginning Year 1, its first taxable year. A business loan agreement evidences this intent and for Year 1 X filed a Form 1120S, U.S. Income Tax Return for an S Corporation. The shareholders relied on their attorney to file a signed Form 2553, Election by a Small Business Corporation, with the Internal Revenue Service for X. However, a Form 2553 was not timely filed.

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 -2-

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 appropriate service center effective D1, Year 1, 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.

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,

JEANNE M. SULLIVAN
Assistant to the Chief
Branch 2
Office of the Associate
Chief Counsel
(Passthroughs and
Special Industries)
Enclosures: 2
Copy of this letter
Copy for § 6110 purposes