PLR 9951026: Lost election form qualifies for S corporation filing relief

Plain-English summary

A corporation intended to elect S corporation status for its first tax year, but its prepared Form 2553 was lost after an accountant passed it to an attorney for filing. The IRS found reasonable cause for the missed filing under § 1362(b)(5). It ruled that the election would be treated as timely for that first year if the corporation filed a completed Form 2553 within 60 days of the letter. The IRS did not decide whether the corporation otherwise met the requirements to be an S corporation.

Ruling snapshot

• Question: May the corporation's late S corporation election be treated as timely?
• Outcome: Approved conditionally: file Form 2553 within 60 days of the ruling letter.
• Key authorities: IRC §§ 1362(b)(5), 1361(b).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Index Number: 1362.01-03 Washington, DC 20224

Number: 199951026
Person to Contact:
Release Date: 12/23/1999
Telephone Number:

Refer Reply To:
CC:DOM:P&SI:2 - PLR-113559-99
Date:
September 27, 1999

X =

A =

Year 1 =

Dear
:

This letter responds to your letter dated July 28, 1999, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated in Year 1. A, the sole shareholder and president of X, represents that X intended to be an S corporation beginning Year 1, its first taxable year. A relied on A’s advisors to file any necessary election in order for X to be an S corporation. A’s internal accountant prepared a Form 2553, Election by a Small Business Corporation, for X, but upon resigning handed it to X’s attorney for filing. The Form 2553 was subsequently lost and the attorney did not realize it had not been filed. Therefore, a Form 2553 was not timely filed with the Internal Revenue Service .

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)
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

-2-

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 sent to X’s two authorized representatives.

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