PLR 200109030: Late S corporation election may be treated as timely after reasonable cause is shown

Plain-English summary

The IRS considered a corporation that intended to elect S corporation status for its first tax year but did not timely file Form 2553 because of incorrect advice from its incorporator. The corporation's shareholder and board member documented the intent to make the election in shareholder meeting minutes. The IRS found reasonable cause for the late election under IRC § 1362(b)(5). It allowed the election to be treated as timely if the corporation filed a completed Form 2553 within 60 days after the ruling letter. The IRS did not express an opinion on other federal tax consequences, including whether the corporation qualified as a small business corporation under § 1361(b).

Ruling snapshot

• Question: Could the corporation's late S corporation election be treated as timely because it had reasonable cause for missing the filing deadline?
• Outcome: Approved, subject to filing Form 2553 within 60 days.
• Key authorities: IRC §§ 1362(a), 1362(b), 1362(b)(5), and 1361(b).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Number: 200109030
Washington, DC 20224
Release Date: 3/2/2001
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2 - PLR-123515-00
Date:
November 30, 2000

X =

A =

D1 =

Year 1 =

Dear
:

This letter responds to a letter dated October 24, 2000, 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, a shareholder and board member of X, represents that X was intended to be an S corporation effective for the Year 1 taxable year. This intent is evidenced by the minutes of a special meeting of the shareholders of X, which state that X plans to be treated as an S corporation. However, X’s incorporator mistakenly informed X that X could make an S corporation election when it filed its first income tax return. Therefore, no Form 2553, Election by a Small Business Corporation, was timely 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

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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