PLR 200112045: Late S corporation election allowed for first tax year

Plain-English summary

A corporation's founding shareholders intended S corporation treatment for its first tax year. They relied on an attorney and accountant to file Form 2553, but a miscommunication left the election unfiled. The corporation and shareholders filed returns consistent with S corporation treatment. The IRS found reasonable cause under section 1362(b)(5) and will treat the election as timely if the corporation files Form 2553 within 60 days of the ruling. It did not decide whether the corporation otherwise qualifies as a small business corporation under section 1361(b).

Ruling snapshot

• Question: Can the corporation's late S election be effective for its first tax year?
• Outcome: Approved, conditioned on filing Form 2553 within 60 days.
• Key authorities: IRC §§ 1362(b)(5), 1361(b).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200112045
Washington, DC 20224
Release Date: 3/23/2001
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2-PLR-117423-00
Date:
December 20, 2000

X =

A =

B =

D1 =

Year 1 =

Dear
:

This responds to your letter dated September 8, 2000, written 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 represents that X’s shareholders intended for X to be treated as an S corporation for federal tax purposes as of Year 1, X's first taxable year. A and B, X’s founding shareholders, instructed and relied upon X’s attorney and accountant to file a timely Form 2553, Election by a Small Business Corporation, for X for Year 1. However, due to a miscommunication between X’s attorney and accountant, each assumed that the other had filed the Form 2553 for X. As a result, a timely Form 2553 was not filed for X for Year 1.

A represents that X and X’s shareholders filed their tax returns for Year 1 consistent with the treatment of X as 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, 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
PLR-117423-00

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.

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