PLR 200111020: Late S corporation election may take effect in first tax year

Plain-English summary

A corporation intended to elect S corporation status for its first tax year. Its sole shareholder believed the election form had been filed on time, but the IRS had no record of receiving it. The IRS found reasonable cause for the missed deadline under § 1362(b)(5). It ruled that a completed Form 2553 filed within 60 days of the letter would be treated as timely for the corporation's first tax year. The IRS did not decide whether the corporation otherwise qualified as an S corporation under § 1361(b).

Ruling snapshot

• Question: Could the corporation's S election take effect in its first tax year despite the missing timely filing?
• Outcome: Approved if it files a completed Form 2553 within 60 days of the ruling.
• Key authorities: IRC §§ 1361(b) and 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Number: 200111020
Washington, DC 20224
Release Date: 3/16/2001
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2 - PLR-115502-00
Date:
December 13, 2000

X =

A =

D1 =

Year 1 =

Dear :

This letter responds to a letter dated May 31, 2000, and subsequent correspondence, written on behalf of X by its 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 is the sole shareholder of X. A, the president of X, represents that it was intended for X to be an S corporation beginning in Year 1, its first taxable year. A further represents that X’s attorney prepared a Form 2553, Election by a Small Business Corporation, on behalf of X, and A signed the Form 2553. A believes that X’s Form 2553 was timely filed. However, the Service has no record of receiving a timely Form 2553 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.
 -2-
Ms. Debra J. Lewis

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 and to X’s other 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