PLR 200106025: Missing Form 2553 receives late election relief

Plain-English summary

A corporation's sole shareholder intended S corporation treatment from its first tax year and relied on an accountant to prepare the election. Form 2553 was never filed, although the corporation's employer identification number application showed its intent and it filed an S corporation return. The IRS found reasonable cause for the late election. It ruled that a Form 2553 filed within 60 days of the letter would be treated as timely for the first year. The ruling did not decide whether the corporation otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Could the corporation make a late first-year S corporation election?
• Outcome: Approved, if Form 2553 is filed within 60 days.
• Key authorities: IRC § 1362(b)(5).

Full text (IRS public release)

INTERNAL REVENUE SERVICE

Number: 200106025
Release Date: 2/9/2001
Index No.: 1362.01-03

CC:PSI:2 - PLR-113536-00
November 9, 2000

X =

A =

D1 =

D2 =

Year 1 =

Dear
This responds to a letter dated June 28, 2000, and previous 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. The sole shareholder of X is A. A, X's president, represents that X relied on its accountant to prepare the necessary documents for purposes of obtaining X’s S corporation status. However, the Form 2553, Election by a Small Business Corporation, for X was not filed. A represents that it was A’s intent to have X elect to be an S corporation effective D2 of Year 1. X’s Form SS-4, Application for Employer Identification Number, reflects that it was A’s intent to have X treated as an S corporation. X filed its tax return using Form 1120S, U.S. Income Tax Return for 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 effective for X's tax year beginning D2 of Year 1. Accordingly, provided that X makes an election to be an S corporation by filing a Form 2553

-2-

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 ruled upon above, no opinion is expressed concerning the federal tax consequences of the facts described above under any other provisions 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 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