PLR 200221023: Attorney's missed S election deadline receives relief

Plain-English summary

A corporation's sole shareholder intended it to be an S corporation from its first taxable year, and corporate records reflected that intention. Its attorney inadvertently failed to file Form 2553 on time. The IRS found reasonable cause for the missed deadline under IRC § 1362(b)(5). If the corporation filed a completed Form 2553 for that first year within 60 days of the letter, the IRS would treat the election as timely. The IRS did not decide whether the corporation met the separate small business corporation requirements of § 1361(b).

Ruling snapshot

• Question: Can the corporation's first year S election be treated as timely despite its attorney's missed filing deadline?
• Outcome: approved, subject to filing Form 2553 within 60 days
• Key authorities: IRC §§ 1362(a), 1362(b)(5), and 1361(b)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200221023
Washington, DC 20224
Release Date: 5/24/2002
Index Number: 1362.01-03
Person to Contact:

Telephone Number:
(202)622-3060
Refer Reply To:
CC:PSI:2- PLR-164340-01
Date:
February 19, 2002

Legend

X
=

A
=

Date 1 =

Year 1 =

Dear
:

This letter responds to a letter dated October 29, 2001, together with subsequent correspondence, submitted on behalf of X, requesting a ruling under §1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated on Date 1 of Year 1.
A, the president and sole shareholder of X, represents that she always intended for X to be an S corporation, and corporate documents indicate A’s intention for X to be an S corporation. However, X’s attorney inadvertently failed to timely file Form 2553, Election by a Small Business Corporation, on behalf of X for Year 1.

Section 1362(b)(5) 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 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
PLR-164340-01
2

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,
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