PLR 200252068: Entity receives time to file late corporation and S corporation elections

Plain-English summary

An entity intended from its creation to elect corporate tax classification and then S corporation status, both effective on its creation date. It inadvertently missed both filing deadlines. The IRS granted a 60-day extension to file the entity classification election on Form 8832 and said the S election would be recognized from the intended date if the entity otherwise qualified. The entity also had to file Form 2553 within 60 days. The IRS expressly did not decide whether the entity actually met all S corporation requirements.

Ruling snapshot

• Question: May an entity file its late corporate classification and S corporation elections effective from its creation date?
• Outcome: Approved; the late elections receive relief subject to timely filing and S corporation eligibility.
• Key authorities: IRC § 1362(a), (b)(5); Treas. Reg. §§ 301.7701-3, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200252068
Washington, DC 20224
Release Date: 12/27/2002
Index Number: 1362.01-03 Person to Contact:
9100.31-00
Telephone Number:

Refer Reply To:
CC:PSI:2-PLR-127212-02
Date:
September 13, 2002

Legend

X:

Y:

State:

Date 1:

Date 2:

Dear
:

This letter responds to a
, and additional
correspondence, submitted on behalf of X requesting an extension of time under
§ 301.9100-3 of the Procedure and Administration Regulations for X to elect to be treated as an association taxable as a corporation for federal tax purposes and relief under § 1362(b)(5) of the Internal Revenue Code.

Facts

According to the information submitted X was organized as Y in State on Date 1.
On Date 2, Y filed a name change amendment with State to become X. X intended from inception to elect to be treated as an association taxable as a corporation and to then elect to be treated as an S corporation, with both elections to be effective Date 1. However, X inadvertently failed to timely file either election.

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Discussion

Section 301.7701-3(a) provides that a business entity that is not classified as a corporation under § 301.7701-2(b)(1), (3), (4), (5), (6), (7), or (8) (an eligible entity) can elect its classification for federal tax purposes. An eligible entity with at least two members can elect to be classified as either an association (and thus a corporation under § 301.7701-2(b)(2)) or a partnership, and an eligible entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner.

Section § 301.7701-3(b)(1) provides that, except as provided in § 301.7701-3(b)(3), unless the entity elects otherwise, a domestic eligible entity is -- (i) A partnership if it has two or more members; or (ii) Disregarded as an entity separate from its owner if it has a single owner.

Section 301.7701-3(c)(1)(i) provides that an eligible entity may elect to be classified other than as provided in § 301.7701-3(b) by filing Form 8832, Entity Classification Election, with the appropriate service center. Section 301.7701-3(c)(1)(iii) provides that all such elections will be effective on the date specified on Form 8832 or on the date filed if no effective date is specified. The specified effective date cannot be more than 75 days prior to the filing date of Form 8832, nor later than twelve months after the filing date.

Section 301.9100-1(c) provides that the Commissioner may grant a reasonable extension of time to make a regulatory election, or a statutory election (but no more than 6 months except in the case of a taxpayer who is abroad), under all subtitles of the Internal Revenue Code except subtitles E, G, H, and I. Section 301.9100-1(b) defines the term “regulatory election” as an election whose due date is prescribed by a regulation published in the Federal Register or a revenue ruling, revenue procedure, notice, or announcement published in the Internal Revenue Bulletin.

Sections 301.9100-1 through 301.9100-3 provide the standards the Commissioner will use to determine whether to grant an extension of time to make the election.

Section 301.9100-2 provides rules governing automatic extensions of time for making certain elections.

Section 301.9100-3 provides the standards the Commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of § 301.9100-2. Under § 301.9100-3, a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the Commissioner that (1) the taxpayer acted reasonably and in good faith, and (2) granting relief will not prejudice the interests of the government.

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Section 1362(a) provides that a small business corporation can elect to be treated as an S corporation.

Section 1362(b) provides the rule on when an S election will be effective.
Section 1362(b)(2) provides in relevant part that if an S election is made within the first two and one-half months of a corporation’s taxable year, then the corporation will be treated as an S corporation for the year in which the election is made. Under
§ 1362(b)(3), however, if an S election is made after the first two and one-half months of a corporation’s taxable year, then that corporation will not be treated as an S corporation until the taxable year after the year in which the S election is filed.

Section 1362(b)(5) 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.

Conclusion

Based on the information submitted and the representations made, we conclude that the requirements of § 301.9100-3 have been satisfied. Therefore, X is granted an extension of time until 60 days following the date of this letter to file Form 8832 with the appropriate service center to elect to be classified as an association for federal tax purposes effective Date 1, with a copy of this letter attached.

In addition, based on the information submitted and the representations made, and provided that X otherwise qualifies as an S corporation, we conclude that X will be recognized as an S corporation effective Date 1. Within 60 days from the date of this letter, X should submit a properly completed Form 2553, with a copy of this letter attached, to the appropriate service center.

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. Specifically, no opinion is expressed whether X is, in fact, an S corporation for federal tax purposes.

This ruling is directed only to the taxpayers who requested it. Section 6110(k)(3) provides that it may not be used or cited as precedent.

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Pursuant to a power of attorney on file with this office, a copy of this letter is being sent to X’s authorized representative.

Sincerely yours,

Heather C. Maloy

Heather C. Maloy
Associate Chief Counsel
(Passthroughs and Special Industries)

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