PLR 200115012: Late S election caused by adviser miscommunication

Plain-English summary

A corporation's sole shareholder intended S corporation status for a stated tax year and relied on an attorney and accountant to file Form 2553. A miscommunication between them caused the form to be late. The IRS found reasonable cause under section 1362(b)(5) and ruled that an election would be treated as timely 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 an S corporation.

Ruling snapshot

• Question: Can the corporation's late S election be treated as timely for the requested tax year?
• Outcome: Approved, contingent on filing Form 2553 within 60 days
• Key authorities: IRC § 1362(b)(5)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200115012
Washington, DC 20224
Release Date: 4/13/2001
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-117336-00
Date:
January 9, 2001

LEGEND:

X
=
A
=
D1
=
D2
=

Dear

This letter responds to a letter, dated August 31, 2000, written on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code that X's S corporation status will be effective as of the taxable year beginning D2.

FACTS

According to the information submitted, X was incorporated on D1 and it was decided that X would be an S corporation. A, the sole shareholder of X, relied on an attorney and an accountant to file X's Form 2553, Election by a Small Business Corporation, with an effective date of D2. Due to a miscommunication between the attorney and the accountant, X's Form 2553 was not timely filed.

X requests a ruling that it will be recognized as an S corporation effective for the taxable year beginning D2 under § 1362(b)(5).

LAW AND ANALYSIS
Section 1362(a) provides that a small business corporation may elect to be an S corporation.

Section 1362(b) provides when an S election will be effective. If an S election is made for a corporation’s taxable year and within the first two and one half months of such taxable year, then that corporation will be treated as an S corporation beginning the year in which the election is made. However, if an S election is made for a corporation’s taxable year but after the first two and one half months of the beginning of such taxable year, then that corporation will not be treated as an S corporation until the taxable year after the year in which the S election is made.

Section 1362(b)(5) provides that if: (1) an election under § 1362(a) is made for any taxable year after the date prescribed by § 1362 for making the election or no § 1362(a) election is made for any taxable year, and (2) the Secretary determines that there was reasonable cause for the failure to timely make the election, then the Secretary may treat the election as timely made for such taxable year.

CONCLUSIONS

Based solely on the facts submitted and representations made, we conclude that X has established reasonable cause for not making a timely election and is eligible for relief under § 1362(b)(5). Accordingly, if X makes an election to be an S corporation by filing with the appropriate Service Center a completed Form 2553, containing an effective date of D2 for the election, within 60 days following the date of this letter, then such election will be treated as timely made. A copy of this letter should be attached to the Form 2553 filed with the Service Center. A copy is enclosed for that purpose.

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. Specifically, no opinion is expressed concerning whether X is an S corporation for federal tax purposes.

The ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by an appropriate penalty of perjury statement. While this office has not verified any of the material submitted in support of the request for ruling, it is subject to verification on examination.

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, we are sending a copy of this letter to X.

Sincerely yours,
Donna M. Young
Senior Technician Reviewer, Branch 3
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)
Enclosures (2)
Copy of this letter
Copy for § 6110 purposes