PLR 200114010: Missing S election relieved after reliance on attorney

Plain-English summary

A corporation's shareholders intended S status from the start of its first tax year and relied on an attorney to prepare the election, but Form 2553 was never filed. The corporation nevertheless filed an S corporation tax return. The IRS found reasonable cause for missing the election under IRC § 1362(b)(5). It ruled that a Form 2553 filed within 60 days of the letter, with the ruling attached, would be treated as timely for that first year. The IRS did not decide whether the corporation otherwise qualified as a small business corporation under § 1361(b).

Ruling snapshot

• Question: Can the corporation's unfiled S election be treated as timely for its first tax year?
• Outcome: Approved, if Form 2553 is filed within 60 days
• Key authorities: IRC §§ 1361(b), 1362(b)(5)

Full text (IRS public release)

INTERNAL REVENUE SERVICE

Number: 200114010
Release Date: 4/06/2001
Index No.: 1362.01-03

CC:PSI:2 - PLR-116535-00

December 26, 2000

X =

A =

B =

D1 =

Year 1 =

Dear
This responds to your letter dated August 8, 2000, 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. The shareholders of X are A, and B. A, X's president, represents that X relied on its attorney to prepare the necessary documents for purposes of obtaining X’s S corporation status. However, the Form 2553, Election by a Small Business Corporation, for X was not filed. A represents that it was A’s intent to have X elect to be an S corporation effective D1 of Year 1. X filed its tax return using Form 1120S, U.S. Income Tax Return for an S corporation.

. Section 1362(b)(5) 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-

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 effective for X’s tax year beginning D1 of Year 1. Accordingly, provided that X makes an election to be an S corporation by filing a 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 ruled upon above, no opinion is expressed concerning the federal tax consequences of the facts described above under any other provisions of the Code, including whether X was or is a small business corporation under § 1361(b).

This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) provides that it may not be used or cited as precedent.
Sincerely yours,
J. THOMAS HINES
Branch Chief, Branch 2
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

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