PLR 200106031: Late S corporation election may be treated as timely

Plain-English summary

A corporation's sole shareholder said a timely S corporation election had been filed for its first tax year, but the IRS service center had no record of it. The corporation and shareholder had filed their returns consistently with S corporation treatment. The IRS found reasonable cause for the missing election. It ruled that a completed Form 2553 filed within 60 days of the letter would be treated as timely for the first tax year. The IRS did not decide whether the corporation otherwise met the requirements for S corporation status.

Ruling snapshot

• Question: Could the corporation obtain relief for its missing 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
Department of the Treasury

Number: 200106031
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-118487-00
Date:
November 13, 2000

X =

A =

D1 =

Year 1 =

Dear
:

This responds to a letter dated September 19, 2000, written on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

A, X's sole shareholder, represents that X elected to be treated as an S corporation for federal tax purposes effective as of D1 of Year 1, X's first taxable year, by filing a timely Form 2553, Election by a Small Business Corporation, for X. However, the Internal Revenue service center for X has no record that a timely Form 2553 was filed for X for Year 1.

A represents that X and A filed their tax returns for Year 1 and all subsequent years consistent with the treatment of X as 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

2

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 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