Late S corporation election treated as timely if filed within 60 days

Plain-English summary

A corporation intended to elect S corporation status from its first tax year, but its accountant did not prepare or file Form 2553 on time. The corporation and its shareholders filed tax returns consistent with S corporation status. The IRS found reasonable cause for the late election under section 1362(b)(5). It would treat the election as timely for the first year if the corporation filed a completed Form 2553 within 60 days of the letter. The IRS did not decide whether the corporation otherwise qualified as a small business corporation under section 1361(b).

Ruling snapshot

• Question: Could the corporation's late S corporation election be treated as timely 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: 200108034
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-114648-00
Date:
November 28, 2000

X =

A =

B =

D1 =

Year 1 =

Dear :
This letter responds to a letter dated July 12, 2000, and subsequent 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. A, and B are the shareholders of X. A, the president of X, represents that it was intended for X to be an S corporation since inception. The shareholders of X relied on X’s accountant to timely prepare and file a Form 2553, Election by a Small Business Corporation for X for Year 1. However, X’s accountant failed to timely prepare and file a Form 2553 for X. When filing its income tax returns, X filed Form 1120S, U.S. Income Tax Return for an S Corporation , and X’s shareholders filed Form 1040, U.S. Individual Income Tax Return, consistent with X being 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, -2-
Dr. Marc S. Hartig
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 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.

Sincerely yours,

J. THOMAS HINES
Chief, Branch 2
Office of the Associate
Chief Counsel
(Passthroughs and
Special Industries)

Enclosures: 2
Copy of this letter
Copy for § 6110 purposes