PLR 9946023: S election accepted when IRS had no record of filing

Plain-English summary

A corporation intended S corporation status from its first taxable year and instructed its incorporating attorney to file Form 2553. The attorney said the form was filed on time, but the IRS service center had no record of receiving it. The corporation and its shareholders 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 ruling did not decide whether the company 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 Department of the Treasury

Index Number: 1362.01-03 Washington, DC 20224

Number: 199946023
Person to Contact:
Release Date: 11/19/1999
Telephone Number:

Refer Reply To:
CC:DOM:P&SI:2 - PLR-109078-99
Date:
August 24, 1999
X =

A =

Month =

Year 1 =

Dear
:

This letter responds to a letter dated May 4, 1999, and subsequent correspondence submitted by 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 in Month of Year 1. A, the president of X, represents that X was intended to be an S corporation from its inception. A further represents that X’s incorporating attorney was instructed to make an S corporation election for X effective for X’s Year 1 taxable year. The attorney claims to have timely filed a Form 2553, Election by a Small Business Corporation, for X. However, X’s Internal Revenue service center has no record of receiving a Form 2553 for X for Year 1. A further represents that, for Year 1 and all subsequent taxable years, X filed Form 1120S, U.S. Income Tax Return for an S Corporation, and X’s shareholders filed Form 1040, U.S. Individual Income Tax Return, consistent with the treatment of X as 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.

Based solely on the facts and the representations submitted, we conclude that X has established reasonable cause for failing

-2-

to make a timely election to be an S corporation for X’s Year 1 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’s authorized representative.

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