PLR 200316002: First-year S election accepted after missing Form 2553

Plain-English summary

A corporation's sole shareholder intended S corporation treatment and filed a first-year S corporation return, but the IRS had no record of its Form 2553 election. The IRS found reasonable cause for the missing election. It ruled that a completed Form 2553 filed within 60 days would be treated as timely for the first tax year. The ruling does not decide whether the corporation otherwise met S corporation eligibility rules.

Ruling snapshot

• Question: Could the corporation make a late S election for its first tax year?
• Outcome: Approved, if Form 2553 is filed within 60 days.
• Key authorities: IRC §§ 1361(b), 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200316002
Washington, DC 20224
Release Date: 4/18/2003
Index Number:1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2- PLR-146486-02
Date:
December 19, 2002

Legend

X
=

A
=

Date 1 =

Year 1 =

Dear
:

This letter responds to a letter dated September 30, 2002, submitted on behalf of X by X’s authorized representative, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated on Date 1. A, the president and sole shareholder of X, represents that A always intended for X to be an S corporation. A Form 1120S, U.S. Income Tax Return for an S Corporation, was filed with the Internal Revenue Service for Year 1 indicating A’s intention that X be an S corporation. However, the Service has no record of X’s Form 2553, Election by a Small Business Corporation, for Year 1.

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.
PLR-146486-02
2

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,

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