PLR 9946026: Late S corporation election accepted after filing omission

Plain-English summary

A corporation's board consent and employer identification number application showed that its sole shareholder intended S corporation status for the company's first taxable year. The shareholder said the company relied on its attorney to prepare and file the necessary documents, but the IRS had no record of Form 2553. The IRS found reasonable cause for the missed election under § 1362(b)(5). It ruled that the election would be treated as timely for the first year if the company filed 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 company's missed S election be treated as timely for its first taxable year?
• Outcome: Approved if the company 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: 199946026
Release Date: 11/19/1999

CC:DOM:P&SI:2 - PLR-108849-99
August 25, 1999

X =

A =

D1 =

Year 1 =

Dear
This responds to a letter dated February 25, 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 incorporated on D1 of Year 1. The sole shareholder of X is A. The Action By Unanimous Written Consent of the Board of Directors in Lieu of Organizational Meeting and X’s Form SS-4, Application for Employer Identification Number, reflect that it was A’s intent to have X treated as an S corporation for X’s first taxable year, Year 1. A, as X's president, represents that X relied on its attorney to prepare and file the necessary documents for purposes of obtaining S corporation status. However, the Service has no record of a Form 2553, Election by a Small Business Corporation, for X.
Section 1362(b)(5) 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,

-2-

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, Year 1. Accordingly, provided that X makes an election to be an S corporation by filing a 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).

This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) 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,

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