PLR 9938028: Late S corporation election allowed for first tax year

Plain-English summary

A corporation's sole shareholder intended S corporation treatment from its first taxable year, but the attorney handling the election did not prepare or timely file Form 2553. The IRS found reasonable cause for the late election. It ruled that the election would be treated as timely for that first year if the corporation filed a completed Form 2553, effective for that year, within 60 days of the letter. The IRS gave no opinion on whether the corporation otherwise met the requirements for S corporation status.

Ruling snapshot

• Question: Can a late S election be treated as timely for the corporation's first taxable year?
• Outcome: Approved, provided a completed Form 2553 is filed within 60 days of the letter.
• Key authorities: IRC § 1362(b)(5); § 1361(b) eligibility reserved.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Index Number: 1362.01-03 Washington, DC 20224

Number: 199938028
Person to Contact:
Release Date: 9/24/1999
Telephone Number:

Refer Reply To:
CC:DOM:P&SI:2 - PLR-104657-99
Date:
June 30, 1999
X =

A =

D1 =

Year 1 =

Dear
:

This letter responds to a letter dated February 25, 1999, and subsequent correspondence, written 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 of Year 1. A, the sole shareholder of X, intended that X elect to be an S corporation beginning Year 1, its first taxable year, and indicated such intent on X’s Form SS-4, Application for Employer Identification Number. A relied upon X’s attorney to handle the election to be an S corporation. However, a Form 2553, Election by a Small Business Corporation, for X’s first taxable year was not filed timely for that year because X’s attorney failed to prepare the form and to make certain that the form was timely filed.

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

-2-
Mr. Mark Olson
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,

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