PLR 200106024: Misunderstood filing responsibility excused for S election

Plain-English summary

Two shareholders expected their attorney to file an S corporation election, while the attorney understood the work to cover only incorporation. No Form 2553 was filed, though the corporation and shareholders filed returns consistent with S corporation treatment. The IRS found reasonable cause for the missed deadline. It ruled that an election filed within 60 days of the letter would be treated as timely for the corporation's first tax year. The IRS did not determine whether the corporation otherwise qualified for S status.

Ruling snapshot

• Question: Could the corporation's missed first-year S election deadline be excused?
• 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: 200106024
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-116703-00
Date:
November 8, 2000

X =

A =

B =

D1 =

Year 1 =

Dear
:

This letter responds to a letter, dated August 25, 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 and B are the shareholders of X. A, as the vice-president of X, represents that X was intended to be an S corporation beginning Year 1, its first taxable year. A and B thought that X’s attorney would file a Form 2553, Election by a Small Business Corporation, for X with the Internal Revenue Service. X’s attorney thought that his responsibility was limited to forming X as a corporation. Therefore, no Form 2553 was filed for X. For Year 1 X filed a Form 1120S, U.S. Income Tax Return for an S Corporation, and A and B filed individual tax returns 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

-2-

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 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