PLR 9940029: Late S corporation election allowed after filing mistake

Plain-English summary

A corporation's president said he signed Form 2553 to elect S corporation status for its first tax year, but the accountant never mailed it. The IRS found reasonable cause for the missed deadline under section 1362(b)(5). It ruled that the election would be treated as timely if the corporation filed a completed Form 2553 within 60 days of the letter, effective for that first year. The IRS did not decide whether the corporation otherwise met the requirements to be an S corporation.

Ruling snapshot

• Question: Can the corporation make a late S corporation election for its first tax year?
• Outcome: Approved if it files Form 2553 within 60 days of the ruling.
• Key authorities: IRC §§ 1362(b)(5), 1361(b).

Full text (IRS public release)

INTERNAL REVENUE SERVICE
Index No.: 1362.01-03
Number: 199940029
Release Date: 10/8/1999

CC:DOM:P&SI:2 - PLR-105566-99

July 13, 1999

X =
EIN:

A =

Date 1 =

Year 1 =

Year 2 =

Dear Mr.

This is in reply to a letter dated January 4, 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 organized on Date 1. A, as X's president, represents that it was A’s intent that X elect to be an S corporation effective for Year 1, X's first taxable year. A further represents that A signed a Form 2553, Election by a Small Business Corporation, in his accountant’s office, but that the accountant never mailed the election. X filed a Form 1120S for Year 2, the first year X conducted business.

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. Accordingly, provided X makes an election to be an S corporation by filing a completed Form 2553 with the

2

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.

Sincerely yours,

J. THOMAS HINES
Senior Technician Reviewer
Branch 2
Office of the Assistant
Chief Counsel
(Passthroughs and
Special Industries)

Enclosures: 2
Copy of this letter
Copy for section 6110 purposes