PLR 200106027: Attorney misunderstanding excused for S election

Plain-English summary

A corporation intended to elect S corporation status from its first tax year and relied on its attorneys to file the necessary papers. A misunderstanding among the attorneys meant that no Form 2553 was prepared or filed. The IRS found reasonable cause for the failure. It ruled that an election filed within 60 days of the letter would be treated as timely for that first year. The IRS did not decide whether the corporation otherwise qualified as a small business corporation.

Ruling snapshot

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

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Number: 200106027
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-115169-00
Date:
November 9, 2000

X =

A =

D1 =

D2 =

Year 1 =

Dear
:

This letter responds to your letter dated August 2, 2000, and subsequent correspondence, submitted by you as X’s authorized representative, 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, the president of X, represents that X was intended to be an S corporation from its inception. This intent is evidenced by the notes taken by one of X’s attorneys at a meeting on D2 of Year 1, which indicate that X would be an "S Corp". A further represents that X relied on its attorneys to file the documents necessary for obtaining S corporation status. However, due to a misunderstanding among X’s attorneys, no Form 2553, Election by a Small Business Corporation , was prepared or filed for 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.

-2-

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 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 forwarded to X.

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