PLR 200106023: Accountant's missed Form 2553 filing receives relief

Plain-English summary

A corporation's shareholders intended S corporation treatment from its first tax year. The corporation's minutes and S corporation return reflected that intent. Its attorney had instructed its accountant to file Form 2553, but a misunderstanding led to no filing. The IRS found reasonable cause and ruled that an election filed within 60 days of the letter would be treated as timely for the first year. The IRS did not decide whether the corporation otherwise qualified for S status.

Ruling snapshot

• Question: Could the corporation's first-year S election be treated as timely after the accountant missed the filing?
• Outcome: Approved, if Form 2553 is filed within 60 days.
• Key authorities: IRC § 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Number: 200106023
Washington, DC 20224
Release Date: 2/9/2001
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2 - PLR-110986-00
Date:
November 7, 2000

X =

A =

B =

D1 =

Year 1 =

Dear
:
This letter responds to your letter, dated May 22, 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 in Year 1. A and B, as the shareholders of X, represent that X was intended to be an S corporation beginning Year 1, its first taxable year. The Minutes of the First Meeting of the Directors of X evidences this intent. Moreover, for Year 1 X filed a Form 1120S, U.S. Income Tax Return for an S Corporation. X’s attorney instructed X’s accountant to file a Form 2553, Election by a Small Business Corporation, with the Internal Revenue Service. However, due to a misunderstanding, X’s accountant did not file a Form 2553 X.

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,
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