PLR 200127029: Late S corporation election allowed for first tax year

Plain-English summary

A company with two shareholders intended to be an S corporation from its first year and filed an S corporation return for that year. It missed the Form 2553 deadline for its first year, although a later election was accepted for its second year. The IRS found reasonable cause for the initial failure under IRC § 1362(b)(5). If the company files a completed Form 2553 within 60 days of the ruling letter for its first year, the IRS will treat that election as timely. The ruling did not decide whether the company otherwise met the requirements for an S corporation.

Ruling snapshot

• Question: Can the company's S corporation election be treated as timely for its first tax year?
• Outcome: Approved if Form 2553 is filed within 60 days of the ruling.
• Key authorities: IRC § 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Number: 200127029
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-105773-01
Date:
April 10, 2001
X =

A =

B =

D1 =

Year 1 =

Year 2 =

Dear :

This letter responds to a letter January 10, 2001, written 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 began doing business on D1 of Year 1. A and B are the shareholders of X. A, the president of X, represents that it was intended for X to be an S corporation beginning in Year 1. However, no timely completed Form 2553, Election by a Small Business Corporation, was filed on behalf of X for Year 1. Subsequently, a completed Form 2553 was filed and accepted for Year 2. For Year 1, X filed 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 -2-
Mr. Montfort Jones
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 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