PLR 9949015: Misunderstood S election filing gets 60-day relief

Plain-English summary

A corporation's sole shareholder intended the company to be an S corporation but misunderstood how to file the election. The omission came to light when the accountant discussed preparing the company's first-year S corporation return. The IRS found reasonable cause for the missed Form 2553 deadline under § 1362(b)(5). It would treat the election as timely for the first tax year if the corporation filed a completed Form 2553 with the appropriate service center within 60 days of the letter date. The ruling did not decide whether the corporation otherwise qualified as a small business corporation under § 1361(b).

Ruling snapshot

• Question: Could the corporation make an S election for its first year despite failing to file Form 2553 on time?
• Outcome: Approved, provided Form 2553 is filed within 60 days of the letter date.
• Key authorities: IRC §§ 1362(a), 1362(b)(5), and 1361(b).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Index Number: 1362.01-03 Washington, DC 20224

Number: 199949015
Person to Contact:
Release Date: 12/10/1999
Telephone Number:

Refer Reply To:
CC:DOM:P&SI:2 - PLR-113610-99
Date:
September 9, 1999
X =

A =

D1 =

Year 1 =

Dear
:

This letter responds to a letter dated July 13, 1999, and subsequent correspondence submitted by you 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. A, the chief executive officer and sole shareholder of X, represents that A consulted with a representative of the Small Business Administration as to the best method of forming X, and was advised that X should be an S corporation. However, A misunderstood the method of properly filing an S corporation election and failed to file a Form 2553, Election by a Small Business Corporation, for X. When A discussed the preparation of a Form 1120S, U.S. Income Tax Return for an S Corporation, for X’s Year 1 taxable year with X’s accountant, X’s accountant discovered that no Form 2553 was filed for X for Year 1.

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 that X makes an election to -2-

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.
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 § 6110 purposes