PLR 9937018: Late S election accepted if company files Form 2553 within 60 days

Plain-English summary

A newly formed company and its sole shareholder intended S corporation treatment from the company's first tax year. The company, its accountant, and its attorney each assumed someone else would file Form 2553, so no election reached the IRS, although both company and shareholder filed returns consistent with S status. The IRS found reasonable cause for the missed filing and ruled that the election would be treated as timely if the company filed Form 2553 within 60 days of the letter. The IRS did not decide whether the company otherwise met the small business corporation requirements of § 1361(b).

Ruling snapshot

• Question: Can the company's first-year S election be treated as timely despite the missing Form 2553?
• Outcome: Approved (conditioned on filing Form 2553 within 60 days)
• Key authorities: IRC §§ 1362(b)(5), 1361(b)

Full text (IRS public release)

INTERNAL REVENUE SERVICE
Index No.: 1362.01-03
Number: 199937018
Release Date: 9/17/1999

CC:DOM:P&SI:2 - PLR-104002-99
June 16, 1999

X =

A =

State Y =

D1 =

Year 1 =

Dear
:
This responds to your letter dated January 16, 1999, and subsequent correspondence, 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 sole shareholder of X is A. The State Y Business Registration Form filed by X with State Y reflects A’s intent to have X treated as an S corporation as of Year 1, X’s first taxable year. X, X’s accountant, and X’s attorney each assumed that someone else would handle the filing of X’s Form 2553, Election by a Small Business Corporation. However, after X filed its Year 1 return on Form 1120S, U.S. Income Tax Return for an S corporation, and after A filed A’s Year 1 return consistent with treating X as an S corporation, X received a notice from the Service explaining that the Form 1120S could not be processed because there was no Form 2553 on file.

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.

-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 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 § 6110 purposes