PLR 200316025: Late corporate classification and S elections accepted

Plain-English summary

A business entity intended to elect corporate tax classification and S corporation status from the day it began business, but it missed both filing deadlines. The IRS gave it 60 days to file Form 8832 with the intended effective date. It also ruled that the entity would be recognized as an S corporation from that date if it otherwise qualified and sent an original Form 2553 within 60 days. The ruling does not independently establish S corporation eligibility.

Ruling snapshot

• Question: Could the entity make both elections late, effective when it began business?
• Outcome: Approved: 60 days to file Forms 8832 and 2553, subject to S corporation eligibility.
• Key authorities: IRC § 1362(b)(5); Treas. Reg. §§ 301.7701-3, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200316025
Washington, DC 20224
Release Date: 4/18/2003
Index Number: 1362.01-03, 9100.31-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2-PLR-152846-02
Date:
January 8, 2003

Legend

X
=

D1 =

D2 =

State =

Dear
:

This letter responds to your representative's letter dated September 9, 2002 submitted on behalf of X requesting a ruling that X be given an extension of time to elect under § 301.9100-3 of the Procedure and Administration Regulations to be classified 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 formed on D1 under State law and began doing business on D2. X intended 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 effective D2. However, Form 8832, Entity Classification Election, and the election to be treated as an S corporation inadvertently were not timely filed.

Law and Analysis

Section 301.7701-3(a) provides that a business entity that is not classified as a corporation under section 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 a single owner can elect to be classified either as an entity disregarded as separate from its owner or as an association.
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Section 301.7701-3(b)(1) provides that an eligible entity with a single owner will be disregarded as an entity separate from its owner unless it elects otherwise.

To elect to be classified other than as provided in § 301.7701-3(b), an eligible entity must file Form 8832 with the service center designated on that Form. Section 301.7701-3(c)(1)(iii) provides that all such elections become effective on the date specified by the entity on Form 8832 or on the date filed if no effective date is specified. The specified effective date must not be earlier 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) gives the Commissioner discretion to grant reasonable extensions of time to make regulatory elections under the rules of §§ 301.9100-2 and 301.9100-3. Under § 301.9100-1(b), a regulatory election includes an election whose due date is prescribed by a regulation published in the Federal Register.

Section 301.9100-3 sets forth the standards which the Commissioner uses to determine whether to grant a discretionary extension of time. These standards indicate that the Commissioner should grant relief when the taxpayer provides evidence proving to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interests of Government.

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

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 solely on the information submitted and the representations made, we conclude that X has satisfied the requirements of §§ 301.9100-1 and 301.9100-3. As a result, X is granted an extension of time for 60 days from the date of this letter to elect to be treated as an association taxable as a corporation for federal tax purposes, effective D2. X should make the election by filing Form 8832 with the relevant Service Center. A copy of this letter should be attached to that Form.

In addition, based solely on the facts submitted and representations made, and provided that X otherwise qualifies as a subchapter S corporation, we conclude that X will be recognized as an S corporation effective D2. An original Form 2553 along with a copy of this letter must be forwarded to the relevant Service Center within 60 days from
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the date of this letter.

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter.

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

In accordance with the power of attorney on file with this office, a copy of this letter is being sent to your authorized representative.

Sincerely,

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

Enclosures (2)
Copy of this letter
Copy for section 6110 purposes