PLR 200118024: Unreturned shareholder election forms get late filing relief

Plain-English summary

A company intended to be an S corporation from its first tax year and sent Form 2553 to its shareholders for signatures. The shareholders did not return the form to the attorney who was to file it, so no S election was filed, although the company filed an S corporation tax return. The IRS found reasonable cause for the missed election under section 1362(b)(5). It ruled that the election would be treated as timely for the first tax year if the company filed a completed Form 2553 within 60 days of the letter, with the ruling attached. The IRS did not decide whether the company met the small business corporation requirements.

Ruling snapshot

• Question: May the company make an S election effective for its first tax year after the original filing was missed?
• Outcome: Approved, provided Form 2553 is filed within 60 days.
• Key authorities: IRC §§ 1361(b), 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Number: 200118024
Washington, DC 20224
Release Date: 5/4/2001
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2 - PLR-117330-00
Date:
February 1, 2001

X =

A =

D1 =

Year 1 =

Dear
:
This letter responds to a letter, dated August 25, 2000, and subsequent correspondence, submitted 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 in Year 1. A, as the president of X, represents that X was intended to be an S corporation beginning Year 1, its first taxable year. The Minutes of the Organizational Meeting of X evidences this intent. A Form 2553, Election by a Small Business Corporation, was forwarded to the shareholders of X for execution. However, the shareholders inadvertently failed to return the Form 2553 to X’s attorney, who was to filed the form with the Internal Revenue Service. Therefore, no Form 2553 was filed with the Internal Revenue Service for X. For Year 1 X filed a Form 1120S, U.S. Income Tax Return for 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.

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 taxable year. Accordingly, provided that X makes an election to be an S corporation by filing a completed Form 2553 with the -2-

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 requesting it.
Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.
In accordance with the power of attorney on file with this office, a copy of this letter is being sent 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