PLR 9949021: First-year S election gets conditional late-filing relief

Plain-English summary

A corporation intended to be an S corporation in its first tax year, but its shareholders misunderstood when to file Form 2553. It filed an election for its second year on time and filed first-year returns as though the first-year election had been made. The IRS found reasonable cause for missing the first-year deadline under § 1362(b)(5). It ruled that the first-year election would be treated as timely if the corporation filed a completed Form 2553 with the proper service center within 60 days of the letter date. The IRS expressed no opinion on whether the corporation met the small business corporation requirements of § 1361(b).

Ruling snapshot

• Question: Could the corporation's first-year S election be treated as timely despite its missed Form 2553 deadline?
• Outcome: Approved, if a completed first-year Form 2553 was 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: 199949021
Person to Contact:
Release Date: 12/10/1999
Telephone Number:

Refer Reply To:
CC:DOM:P&SI:2 - PLR-110726-99
Date:
September 10, 1999
X =

A =

D1 =

Year 1 =

Year 2 =

Dear
:

This letter responds to a letter received June 15, 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 on D1. A, the president of X, represents that X was intended to be an S corporation effective for X’s Year 1 taxable year. This intent is indicated by X’s Form SS-4, Application for Employer Identification Number. A further represents that X’s shareholders misunderstood the filing requirements for the timely filing of a Form 2553, Election by a Small Business Corporation, effective for X’s Year 1 taxable year. A Form 2553 was timely filed for X effective for X’s Year 2 taxable year. Therefore, no Form 2553 was timely filed for X effective for X’s Year 1 taxable year. X filed a Form 1120S, U.S. Income Tax Return for an S Corporation, for Year 1, and X’s shareholders filed Forms 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 -2-

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 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,

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
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