PLR 200127013: Missing S election can take effect for first tax year

Plain-English summary

A corporation had filed S corporation returns from its first tax year, but its IRS service center had no record of Form 2553. Its sole shareholder said the company had intended S status from the start, as reflected in its articles of incorporation. The IRS found reasonable cause for the missing timely election under IRC § 1362(b)(5). It ruled that an election for the first year would be treated as timely if the corporation filed Form 2553 with a copy of the ruling within 60 days. The IRS did not decide whether the company otherwise qualified as a small business corporation.

Ruling snapshot

• Question: May a missing S election be treated as timely for the corporation's first tax year?
• Outcome: Approved, conditional on filing Form 2553 within 60 days.
• Key authorities: IRC §§ 1361(b), 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Number: 200127013
Washington, DC 20224
Release Date: 7/6/2001
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2 - PLR-108023-00
Date:
April 3, 2001

X =

A =

D1 =

Year 1 =

Dear
:
This letter responds to a letter, dated June 18, 1999, and subsequent correspondence, 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 sole shareholder and president of X, represents that X was intended to be an S corporation beginning Year 1, its first taxable year. The Articles of Incorporation of X evidences this intent. However, X’s service center has no record of a Form 2553 for X. X has filed a Form 1120S, U.S. Income Tax Return for an S Corporation, for Year 1 and all subsequent years.

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 appropriate service center effective for its Year 1 taxable year, within 60 days following the date of this letter, then such -2-

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,
J. THOMAS HINES
Chief, Branch 2
Office of the Associate
Chief Counsel
(Passthroughs and
Special Industries)

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