PLR 9939030: Late S corporation election allowed if Form 2553 is filed within 60 days

Plain-English summary

A corporation intended to elect S corporation status for its first tax year, but its president did not realize that the prepared Form 2553 had to be filed with the IRS. No election was filed for that year. The IRS found reasonable cause for the missed deadline under § 1362(b)(5). It said the election would be treated as timely if the corporation filed a completed Form 2553 within 60 days of the letter, effective for its first tax year, and attached the ruling. The IRS gave no opinion on whether the corporation otherwise qualified for S status.

Ruling snapshot

• Question: Can this corporation's late S election be treated as timely for its first tax year?
• Outcome: Approved, if Form 2553 is filed within 60 days as directed; S eligibility was not decided.
• Key authorities: IRC §§ 1361(b) and 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Index Number: 1362.01-03 Washington, DC 20224

Number: 199939030
Person to Contact:
Release Date: 10/1/1999
Telephone Number:

Refer Reply To:
CC:DOM:P&SI:2 - PLR-109767-99
Date:
July 6, 1999
X =

A =

D1 =

D2 =

Year 1 =

Dear
:

This letter responds to a letter dated April 27, 1999, and subsequent correspondence submitted by you as X’s authorized representative 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. A, X’s president, represents that X was incorporated by its shareholders with the intention of electing subchapter S status for Year 1, its first taxable year. X’s accountants prepared a Form 2553, Election by a Small Business Corporation, and mailed it to A to obtain the necessary signatures and then to return the form to the accountants for filing with the Internal Revenue Service. However, A did not realize that the Form 2553 had to be filed with the Service to be effective. Therefore, no Form 2553 was filed for X’s Year 1 taxable year. In a notice dated D2, X’s Internal Revenue service center informed X that the service center had no record of a Form 2553 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 -2-

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 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 forwarded 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
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