PLR 200105055: Late S election allowed after attorney failed to file form

Plain-English summary

A corporation's two shareholders intended to elect S status from the company's start and relied on an attorney to prepare and file Form 2553. The attorney did not file it. The IRS found reasonable cause for the missed deadline under section 1362(b)(5). It would treat an election for the corporation's first tax year as timely if the company filed a completed Form 2553 within 60 days of the ruling. The IRS did not decide whether the company otherwise qualified as an S corporation.

Ruling snapshot

• Question: Can the corporation obtain relief for its unfiled first-year S election?
• 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: 200105055
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-115089-00
Date:
November 6, 2000

X =

A =

B =

D1 =

Year 1 =

Dear
:

This letter responds to a letter dated July 26, 2000, and subsequent correspondence, submitted 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 and B are the shareholders of X. A, the president of X, represents that it was intended for X to be an S corporation since inception. The shareholders of X relied on X’s attorney to prepare and file timely a Form 2553, Election by a Small Business Corporation, for X for Year 1. However, X’s attorney failed to file a Form 2553 .

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-
Dr. Nevart Yessaian
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 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