PLR 200414014: Late entity classification and S elections receive relief

Plain-English summary

An entity's members intended it to be taxed as a corporation and as an S corporation from its formation, but the entity missed the deadlines for Forms 8832 and 2553. The IRS granted 60 days from the letter date to file the entity classification election with the intended effective date. It also ruled that the entity would be treated as an S corporation from that date, provided it otherwise qualified and sent Form 2553 within the same 60 days. The two filings were both required for the requested treatment.

Ruling snapshot

• Question: Could the entity make late corporate classification and S corporation elections effective from formation?
• Outcome: Approved, subject to the 60-day filing requirements and S corporation eligibility.
• Key authorities: IRC § 1362(a), (b)(5); Treas. Reg. §§ 301.7701-3, 301.9100-1, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200414014
Release Date: 4/2/04
Index Number: 9100.31-00; 1362.01-03

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Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:B02 – PLR-155860-03
Date:
December 11, 2003

Legend

X = ------------------------------
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A = --------------------
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B = ----------------------
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Date 1 = ---------------------

State = -------------

Dear ------------------:

This responds to a letter dated September 9, 2003, and subsequent correspondence, submitted by X’s authorized representative 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 to be treated as an S corporation under § 1362(b)(5) of the Internal Revenue Code.

According to the information submitted, X was formed on Date 1 in State. A and B, X’s members, intended to elect under § 301.7701-3 to classify X as an association taxable as a corporation for federal tax purposes, and under § 1362 to treat X as an S corporation, effective Date 1. However, due to inadvertence, X failed to file a timely Form 8832, Entity Classification Election, and Form 2553, Election by a Small Business Corporation.
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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.

To elect to be classified other than as provided in section 301.7701-3(b), an eligible entity must file Form 8832, Entity Classification Election, 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 sections 301.9100-2 and 301.9100-3. Under section 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 the 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 the 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 section 1362(a) is made for any taxable year after the date prescribed by section 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 information submitted and the representations made, we conclude that X has satisfied the requirements of sections 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 Date 1. 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.
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In addition, based solely on the facts submitted and the representations made, and provided that X otherwise qualifies as a subchapter S corporation, we conclude that X will be treated as an S corporation effective Date 1. A Form 2553, Election by a Small Business Corporation, along with a copy of this letter must be forwarded to the relevant Service Center within 60 days from 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 § 6110 purposes