PLR 9938020: Late S corporation election accepted if filed within 60 days

Plain-English summary

A corporation's first board meeting and employer identification number application showed that its shareholders intended to elect S corporation status for its first tax year. The corporation said it relied on its attorney to prepare the election, but the IRS had no record of receiving Form 2553. The IRS found reasonable cause for the late election under § 1362(b)(5). It would treat the election as timely for the corporation's first tax year if the corporation filed Form 2553 within 60 days of the letter. The IRS did not decide whether the corporation otherwise qualified as a small business corporation under § 1361(b).

Ruling snapshot

• Question: Can the corporation obtain relief for its missing S corporation election for its first tax year?
• Outcome: Approved, conditional on filing Form 2553 within 60 days of the letter.
• Key authorities: IRC §§ 1362(b)(5), 1361(b).

Full text (IRS public release)

INTERNAL REVENUE SERVICE
Index No.: 1362.01-03
Number: 199938020
Release Date: 9/24/1999

CC:DOM:P&SI:2 - PLR-104903-99
June 25, 1999

X =

A =

B =

D1 =

Year 1 =

Dear
This responds to your letter dated January 29, 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 first meeting of the board of directors of X reflect the shareholders’ intent to have X treated as an S corporation for X’s first taxable year, Year 1. Furthermore, X’s Form SS-4, Application for Employer Identification Number, reflects that it was the intent of the shareholders of X to have X treated as an S corporation. A, as X's president, represents that X relied on its attorney to prepare the necessary documents for purposes of obtaining S corporation status. However, the Service has no record of a Form 2553, Election by a Small Business Corporation, for X.
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, Year 1. 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.

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