PLR 9950013: S election relief where IRS has no record of the filed form

Plain-English summary

A corporation's sole shareholder said he signed Form 2553 at the accountant's office and that it was sent to the IRS, but the service center had no record of it. The corporation and shareholder filed returns consistent with S corporation treatment for the first tax year. The IRS found reasonable cause for the failure to make a timely election and allowed the election to take effect for that year under § 1362(b)(5). The corporation had to submit a completed Form 2553 with the ruling attached within 60 days. The IRS did not decide whether the corporation otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Could the S election take effect for the first tax year when the IRS had no record of the earlier Form 2553?
• Outcome: Approved, conditioned on filing Form 2553 within 60 days.
• Key authorities: IRC §§ 1362(b)(5), 1361(b).

Full text (IRS public release)

INTERNAL REVENUE SERVICE
Index No.: 1362.01-03
Number: 199950013
Release Date: 12/17/1999

CC:DOM:P&SI:2 - PLR-109277-99

September 15, 1999

X =
EIN:

A =

Date 1 =

Year 1 =

Dear

This is in reply to a letter dated May 10, 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 incorporated 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. This intent is stated in X’s original consent of directors. A represents further that A signed a Form 2553, Election by a Small Business Corporation, in X’s accountant’s office, and that the form was sent to the Internal Revenue Service, but the service center has no record of this. In addition, 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