PLR 200118047: Company receives relief after advisers missed its S election

Plain-English summary

Two shareholders intended their company to be taxed as an S corporation from its first tax year. They relied on the company's attorney and accountant to file Form 2553, but confusion between the advisers meant no form was filed. The company and shareholders nevertheless filed their first year returns as though the S election applied. The IRS found reasonable cause for the missed deadline under section 1362(b)(5). It allowed the election to be treated as timely if the company filed a completed 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: Can the company obtain first year S corporation status despite the missing Form 2553?
• Outcome: Approved if it files Form 2553 within 60 days of the letter.
• Key authorities: IRC §§ 1362(b)(5), 1361(b).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200118047
Washington, DC 20224
Release Date: 5/4/2001
Index Number: 1362.01-03
Person to Contact:
James A. Quinn 50-05879
Telephone Number:
202-622-3060
Refer Reply To:
CC:PSI:2-PLR-119073-00
Date:

February, 5, 2001

X =

A =

B =

D1 =

Year 1 =

Dear
:

This responds to your letter dated September 25, 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 in D1 of Year 1. A and B are X's shareholders. A represents that A and B 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 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 confusion between X’s attorney and accountant on who would file the Form 2553, a Form 2553 was not filed for X for Year 1.

A represents that X and A and B 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.

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

2
PLR-119073-00

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'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