PLR 200118033: Board minutes support relief for missed S election

Plain-English summary

A company's sole shareholder intended S corporation status from its incorporation date, as reflected in special board meeting minutes. The company filed its tax return on Form 1120S, but Form 2553 had never been filed. The IRS found reasonable cause for the missed election and granted relief under section 1362(b)(5). The election would be treated as timely for the company's first tax year if it filed Form 2553 within 60 days of the ruling letter. The IRS did not decide whether the company otherwise qualified as a small business corporation.

Ruling snapshot

• Question: May the company make its first year S election after failing to file Form 2553?
• Outcome: Approved if Form 2553 is filed within 60 days of the letter.
• Key authorities: IRC §§ 1362(b)(5), 1361(b).

Full text (IRS public release)

INTERNAL REVENUE SERVICE

Number: 200118033
Release Date: 5/4/2001
Index No.: 1362.01-03

CC:PSI:2 - PLR-121633-00
February 2, 2001
X =

A =

D1 =

Year 1 =

Dear

This responds to your letter dated October 12, 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 sole shareholder of X is A. A, X's president, represents that it was A’s intent that X elect S corporation status effective D1 of Year 1. The minutes of the special board of directors meeting of X reflects the intent of A to have X elect S corporation status. However, the Form 2553, Election by a Small Business Corporation, for X was not filed with the service center. 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.

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.

-2-

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.

Pursuant to the power of attorney on file with this office a copy of this letter is being sent to X.
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