PLR 9932020: Late S corporation election accepted if filed within 60 days

Plain-English summary

A corporation intended to be taxed as an S corporation from its first tax year, but its accountant failed to file Form 2553. The corporation filed an S corporation return, and its shareholders filed consistently with that treatment. The IRS found reasonable cause for the missed election and agreed to treat it as timely if the corporation filed Form 2553 within 60 days of the ruling letter. The IRS did not determine whether the corporation otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Can the corporation's late S corporation election be treated as timely for its first tax year?
• Outcome: Approved, conditioned on filing Form 2553 within 60 days.
• Key authorities: IRC §§ 1361(b), 1362(b)(5).

Full text (IRS public release)

INTERNAL REVENUE SERVICE
Index No.: 1362.01-03
Number: 199932020
Release Date: 8/13/1999

CC:DOM:P&SI:2 - PLR-102426-99
May 11, 1999
X =

A =

B =

D1 =

Year 1 =

Dear
:
This responds to a letter dated January 11, 1999, and 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 D1 of Year 1. The shareholders of X are A and B. The minutes of the organizational meeting of the board of directors of X reflect the shareholders’ intent to have X treated as an S corporation. B, as X's secretary, represents that X relied on its accountant to complete the S corporation election. However, the accountant failed to file a Form 2553, Election by a Small Business Corporation, for X for Year 1, X’s first taxable year. For the Year 1 taxable year, X filed its tax return using Form 1120S, U.S. Income Tax Return for an S corporation, and the shareholders of X filed their returns based on 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 first taxable year. Accordingly, provided that X makes an election to be an S corporation by filing the 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 ruled upon above, no opinion is expressed concerning the federal tax consequences of the facts described above under any other provisions 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 the power of attorney on file with this office, a copy of this letter is being sent to X’s authorized representative.

Sincerely yours,

H. GRACE KIM
Assistant to the Chief
Branch 2
Office of the Assistant
Chief Counsel
(Passthroughs and
Special Industries)

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