PLR 200130021: First-year S corporation election treated as timely after reasonable cause finding

Plain-English summary

A corporation intended to be an S corporation from its first taxable year, as shown by its board's written consent, but no Form 2553 was filed on time. The IRS found reasonable cause for the missed election under IRC § 1362(b)(5). It ruled that an election for the first year would be treated as timely if the corporation filed a completed Form 2553 with the appropriate Service Center within 60 days of the letter and attached the ruling. The IRS did not decide whether the corporation met the small business corporation requirements of § 1361(b).

Ruling snapshot

• Question: Could the corporation's first-year S election be treated as timely despite the missed filing deadline?
• Outcome: Approved, conditional on filing Form 2553 and the ruling within 60 days.
• Key authorities: IRC §§ 1362(b)(5), 1361(b).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Number: 200130021
Washington, DC 20224
Release Date: 7/27/2001
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2 - PLR-100865-01
Date:
April 27, 2001

X =

A =

D1 =

Year 1 =

Dear
:

This letter responds to a letter, dated December 26, 2000, 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 president of X, represents that X was intended to be an S corporation beginning Year 1, its first taxable year. The Unanimous Consent in Lieu of First Meeting of Board of Directors of X evidences this intent. However, no Form 2553, Election by a Small Business Corporation, was timely filed with the Internal Revenue Service.

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 election will be treated as timely made for X's Year 1 taxable

-2-

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.
Sincerely yours,
JEANNE M. SULLIVAN
Acting Senior Technician
Reviewer, Branch 2
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

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