Late S corporation election allowed after attorneys' miscommunication

Plain-English summary

A corporation intended to be an S corporation from inception, but miscommunication between its attorneys left its Form 2553 unfiled for its first tax year. Contemporaneous correspondence from one attorney referred to it as an S corporation. The IRS found reasonable cause for the missed deadline under section 1362(b)(5). It would treat an election for that first year as timely if the corporation filed a completed Form 2553 within 60 days of the letter. The IRS gave no opinion on whether the corporation met the small business corporation requirements of section 1361(b).

Ruling snapshot

• Question: Could the corporation make a late S corporation election for its first tax year?
• Outcome: Approved, provided Form 2553 is filed within 60 days of the letter
• Key authorities: IRC §§ 1362(b)(5) and 1361(b)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Number: 200108033
Washington, DC 20224
Release Date: 2/23/2001
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2 - PLR-121478-00
Date:
November 28, 2000

X =

A =

D1 =

Year 1 =

Dear
:

This letter responds to your letter dated September 28, 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 contemporaneous correspondence from one of X’s attorneys referring to X as an S corporation. However, due to miscommunication between X’s attorneys, no Form 2553, Election by a Small Business Corporation, was filed for X for Year 1.

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 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