PLR 9949028: Late S corporation election allowed if Form 2553 is filed within 60 days

Plain-English summary

A corporation intended to elect S corporation status for its first tax year. Its president completed Form 2553, but the law firm handling the election failed to mail it on time. The corporation and its shareholder filed returns consistent with an S election. The IRS found reasonable cause for the late election under § 1362(b)(5). It would treat the election as timely for the first year if the corporation filed a completed Form 2553 with the proper service center within 60 days of the letter date. The IRS gave no opinion on whether the corporation met the small business corporation requirements of § 1361(b).

Ruling snapshot

• Question: Could the corporation's late S election be treated as timely for its first tax year?
• Outcome: Approved, if a completed 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
Index No.: 1362.01-03
Number: 199949028
Release Date: 12/10/1999

CC:DOM:P&SI:2 - PLR-109176-99

September 14, 1999

X =
EIN:

A =

Date 1 =

Year 1 =

Dear

This is in reply to a letter dated May 3, 1999, submitted on behalf of X by X’s authorized representative, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was organized on Date 1. A, as X's president and sole shareholder, represents that it was A’s intent that X elect to be an S corporation effective for Year 1, X's first taxable year, as evidenced by X’s Board of Directors’ consent statement. A completed a Form 2553, Election by a Small Business Corporation, but the form was not timely filed for that year by X because the law firm that A relied on to handle the S election inadvertently failed to mail it. X filed a Form 1120S for Year 1, and X’s shareholder filed his individual return consistent with X’s having made a timely S election 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 2

taxable year. Accordingly, provided 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 the power of attorney on file with this office, a copy of this letter is being sent to X’s authorized representative.

Sincerely yours,

J. THOMAS HINES
Senior Technician Reviewer
Branch 2
Office of the Assistant
Chief Counsel
(Passthroughs and
Industries)

Enclosures: 2
Copy of this letter
Copy for section 6110 purposes