PLR 200146044: Corporation may file missing S election for its first tax year

Plain-English summary

A newly incorporated company intended to elect S corporation status for its first tax year, but it never filed Form 2553. Its owner pointed to the company's employer identification number application and returns filed consistently with S corporation treatment. The IRS found reasonable cause for the missing election under section 1362(b)(5). It ruled that the election would be treated as timely if the company filed a completed Form 2553 within 60 days of the letter. The ruling did not decide whether the company otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Can the company make an S election effective for its first tax year despite never filing Form 2553?
• Outcome: Approved conditionally: file 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: 200146044
Washington, DC 20224
Release Date: 11/16/2001
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2 - PLR-136442-01
Date:
August 17, 2001

X
=

A
=

D1 =

Year 1 =

Dear
:

This letter responds to a letter, dated June 19, 2001, submitted 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 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. A Form SS-4, Application for Employer Identification Number, evidences this intent. However, no Form 2553, Election by a Small Business Corporation, was filed with the Internal Revenue Service. For Year 1 X filed a Form 1120S, U.S. Income Tax Return for an S Corporation and A filed an individual income tax return consistent with X being 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 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 year. A copy of this letter should be attached to the Form 2553.

PLR-136442-01
-2-

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,
MATTHEW LAY
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