PLR 9940008: Attorney's missed filing receives late S election relief

Plain-English summary

A corporation's sole shareholder intended S corporation treatment from the date of incorporation and relied on an attorney to file Form 2553. The attorney missed the deadline. The IRS found reasonable cause and ruled that an election effective from the corporation's first tax year would be treated as timely if it filed a completed Form 2553 within 60 days of the letter. The IRS did not decide whether the corporation otherwise qualified as an S corporation.

Ruling snapshot

• Question: Could the late S election take effect from the corporation's incorporation date?
• Outcome: Approved, conditional on filing a completed Form 2553 within 60 days.
• Key authorities: IRC § 1362(a) and (b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Index Number: 1362.00-00
Washington, DC 20224

Person to Contact:
Number: 199940008
Telephone Number:
Release Date: 10/8/1999
Refer Reply To:
CC:DOM:P&SI:3 PLR-104024-99
Date:
June 24, 1999

LEGEND:

X
=

A
=

D1
=

Dear

This letter responds to a letter, dated September 22, 1998, written on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code that X's S corporation status will be effective as of the taxable year beginning D1.

FACTS

According to the information submitted, X was incorporated on D1. A, the sole shareholder of X, intended for X to be an S corporation and relied on an attorney to file X's Form 2553, Election by a Small Business Corporation, with an effective date of D1. The attorney, however, failed to timely file X's Form 2553.

X requests a ruling that it will be recognized as an S corporation effective for the taxable year beginning D1 under § 1362(b)(5).

LAW AND ANALYSIS

Section 1362(a) provides that a small business corporation may elect to be an S corporation.

Section 1362(b) provides when an S election will be effective. If an S election is
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made within the first two and one half months of a corporation’s taxable year, then that corporation will be treated as an S corporation beginning the year in which the election is made. If an S election is made after the first two and one half months of a corporation’s taxable year, then that corporation will not be treated as an S corporation until the taxable year after the year in which the S election is made.

Section 1362(b)(5) provides that if: (1) an election under § 1362(a) is made for any taxable year after the date prescribed by § 1362 for making the election or no § 1362(a) election is made for any taxable year, and (2) the Secretary determines that there was reasonable cause for the failure to timely make the election, then the Secretary may treat the election as timely made for such taxable year.

CONCLUSIONS

Based solely on the facts submitted and representations made, we conclude that X has established reasonable cause for not making a timely election and is eligible for relief under § 1362(b)(5). Accordingly, if X makes an election to be an S corporation by filing with the appropriate Service Center a completed Form 2553, containing an effective date of D1 for the election, within 60 days following the date of this letter, then such election will be treated as timely made. A copy of this letter should be attached to the Form 2553 filed with the Service Center. A copy is enclosed for that purpose.

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. Specifically, no opinion is expressed concerning whether X is an S corporation for federal tax purposes.

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.
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Pursuant to a power of attorney on file with this office, a copy of this letter is being forwarded to your authorized representative.

Sincerely yours,

Donna M. Young
Senior Technician Reviewer,
Branch 3
Office of the Assistant Chief
Counsel
(Passthroughs and Special
Industries)

Enclosures (2)
Copy of this letter
Copy for § 6110 purposes