PLR 200519001: Corporation receives relief for missing S corporation election

Plain-English summary

A corporation's sole shareholder intended S corporation treatment from the date of incorporation, and the company filed an S corporation tax return for its first year. The IRS service center had no record of a timely Form 2553 election. The IRS found reasonable cause for the missed filing and said the election would be treated as timely if the corporation filed a completed Form 2553 with the ruling letter within 60 days. The IRS did not decide whether the corporation otherwise met the requirements to be a small business corporation.

Ruling snapshot

• Question: May the corporation make an S corporation election effective from its incorporation date despite the missing timely Form 2553?
• Outcome: Approved, conditioned on filing Form 2553 within 60 days.
• Key authorities: IRC § 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200519001
Release Date: 5/13/2005
Index Number: 1362.01-03

• Person To Contact:
  ---------------------- ------------------------------- --------- ------------
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  ------------------------------- Telephone Number:
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  Refer Reply To:
  CC:PSI:2 – PLR-100352-05
  Date:
  February 09, 2005

Legend

X = ---------------------------------------------
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A = -----------------
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d1 = ----------------------

Dear --------------------
This letter responds to a letter dated August 10, 2004, 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. A, X’s president and sole shareholder represents that A intended that X elect to be an S corporation effective d1. The Minutes of X, dated 10 days after d1, indicates this intent. Additionally, X timely filed a Form 1120S, U.S. Income Tax Return for an S Corporation, for its first taxable year beginning on d1. However, the Internal Revenue service center has no record of a Form 2553, Election by a Small Business Corporation, being timely filed for X.

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.

PLR-100352-05
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 effective d1. Accordingly, provided that X makes an election to be an S corporation by filing a completed Form 2553 effective d1, along with a copy of this letter, with the appropriate service center within 60 days from the date of this letter, then such election will be treated as timely made for d1.

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).

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 forwarded to X's authorized representative.

Sincerely yours,

J. Thomas Hines
Chief, Branch 2
Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures (2)
Copy of this letter
Copy for § 6110 purposes