Late S election accepted after attorney failed to file form

Plain-English summary

A corporation intended to elect S status for its first tax year and relied on its attorney to file Form 2553. Its state election form and an attorney letter showed that intent, but the IRS had no record of the federal form. The IRS found reasonable cause for the missed deadline and granted relief under section 1362(b)(5). The election would be treated as timely if the corporation filed a completed Form 2553 within 60 days with the ruling attached. The IRS did not decide whether the corporation otherwise qualified as a small business corporation.

Ruling snapshot

• Question: May the corporation make its S election effective for its first tax year despite the missing Form 2553?
• Outcome: Approved, if the completed form is filed within 60 days
• Key authorities: IRC §§ 1362(b)(5) and 1361(b)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Number: 200107014
Washington, DC 20224
Release Date: 2/16/2001
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2 - PLR-115553-00
Date:
November 14, 2000

X =

A =

B =

D1 =

D2 =

Year 1 =

State =

Dear
:

This letter responds to a letter dated June 22, 2000, and subsequent correspondence, submitted by the authorized representative of X 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. A, the chief executive officer of X, and B, the secretary and chief financial officer of X, represent that X was intended to be an S corporation effective for the Year 1 taxable year. This intent is evidenced by X’s State Form 3560, S Corporation Election or Termination/Revocation, which indicates that X was making a federal S corporation election, and by a letter from X’s attorney dated D2 of Year 1, which refers to X being treated as an S corporation. A and B further represent that X relied on X’s attorney to file a Form 2553, Election by a Small Business Corporation, for X. However, X’s Internal Revenue service center has no record of X’s filing Form 2553. No Form 2553 was filed for X for the Year 1 taxable year.

-2-

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 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’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