PLR 9946022: Late S election accepted after attorney failed to file

Plain-English summary

A corporation intended to elect S corporation status for its first taxable year, but its attorney failed to prepare and file Form 2553. Its current sole shareholder was a trust. The IRS found reasonable cause for the late election and ruled that the election 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 under § 1361(b).

Ruling snapshot

• Question: Can the corporation's unfiled 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 Department of the Treasury

Index Number: 1362.01-03 Washington, DC 20224

Number: 199946022
Person to Contact:
Release Date: 11/19/1999
Telephone Number:

Refer Reply To:
CC:DOM:P&SI:2 - PLR-109765-99
Date:
August 23, 1999
X =

A =

Trust =

D1 =

Year 1 =

Dear
:

This letter responds to a letter dated May 15, 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. Currently, the sole shareholder of X is Trust. A, X’s president, represents that X was intended to be an S corporation from the date of incorporation. A further represents that X relied on X’s attorney to prepare and file a Form 2553, Election by a Small Business Corporation, to be effective for Year 1, X’s first taxable year. However, X’s attorney failed to prepare and file the Form 2553. Therefore, no Form 2553 was timely filed for X’s Year 1 taxable year.

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

-2-

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