PLR 9946015: Late S election accepted after accountant omitted filing

Plain-English summary

A corporation intended to be an S corporation from its incorporation, but its accountant failed to file Form 2553 for its first taxable year. The corporation and its sole shareholder nevertheless filed returns consistent with S corporation treatment. The IRS found reasonable cause for the missing election and ruled that it would be treated as timely if the corporation filed a completed Form 2553 within 60 days of the letter. The IRS did not decide whether the corporation otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Can the corporation's missing S election be treated as timely for its first taxable year?
• Outcome: Approved if the corporation files Form 2553 within 60 days of the letter.
• Key authorities: IRC §§ 1361(b) and 1362(b)(5).

Full text (IRS public release)

INTERNAL REVENUE SERVICE
Index No.: 1362.01-03
Number: 199946015
Release Date: 11/19/1999

CC:DOM:P&SI:2 - PLR-108580-99
August 20, 1999

X =

A =

D1 =

Year 1 =

Dear
This responds to a letter dated March 17, 1999, 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 sole shareholder of X is A. A, as X's president, represents that it was the intent of X and the shareholder of X for X to be an S corporation from the date X was incorporated. A copy of the minutes of organizational meeting of incorporation of X reflects the shareholder’s intent to have X treated as an S corporation. A further represents that X relied on its accountant to complete the necessary forms for the corporation to be treated as an S corporation. However, the accountant failed to file a Form 2553, Election by a Small Business Corporation, for X for Year 1, X’s first taxable year. For the Year 1 taxable year, X filed its tax return using Form 1120S, U.S. Income Tax Return for an S corporation a nd A filed A’s return based on X being an S corporation.

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.

-2-

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 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 your authorized representative.

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