PLR 200425031: LLC granted relief for late corporate and S elections

Plain-English summary

The members of a limited liability company intended it to be taxed as a corporation and to elect S corporation status from its formation date. The company inadvertently failed to file both Form 8832 and Form 2553 properly and on time. The IRS gave it 60 days from the letter date to file Form 8832 for corporate classification and Form 2553 for S status, both effective from formation. The IRS found the requirements for late classification relief and reasonable cause for the late S election. It did not decide whether the company otherwise qualified as an S corporation.

Ruling snapshot

• Question: Can the LLC make late corporate classification and S corporation elections from its formation date?
• Outcome: Approved, conditioned on filing both forms within 60 days.
• 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
Washington, DC 20224
Number: 200425031
Release Date: 6/18/04
Index Numbers: 1362.01-03; 7701.02-00;
9100.31-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
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CC:PSI:2 – PLR-153069-03
Date:
February 25, 2004

Legend

X = -----------------------------------------------------
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A = -------------------
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d1 = ------------------------

State = --------------------
Dear -------------------
This letter responds to a letter dated August 16, 2003, and subsequent correspondence, submitted on behalf of X, by X's authorized representative, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations for X to file an election to be treated 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 d1 as a State limited liability company. A, X’s managing member represents that A and X’s other members intended that X 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 d1. However, due to inadvertence, X failed to file a properly completed Form 8832, Entity Classification Election. Additionally, due to inadvertence, X failed to file a Form 2553, Election by a Small Business Corporation.

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Section 301.7701-3(b)(1) provides guidance on the classification of a domestic eligible entity for federal tax purposes. Generally, unless the entity elects otherwise, a domestic eligible entity is a partnership if the entity has two or more members.

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 with the service center designated on Form 8832.

Section 301.7701-3(c)(1)(iii) provides that an election under § 301.7701-3(c)(1)(i) will be effective on the date specified on Form 8832 or on the date filed if no such date is specified on the form. The effective date specified on Form 8832 cannot be more than 75 days prior to the date the form is filed and cannot be more than 12 months after the date on which the form is filed.

Section 301.9100-1(c) provides that the Commissioner has discretion to grant a reasonable extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3, to make a regulatory election, or a statutory election (but no more than six months except in the case of a taxpayer who is abroad), under all subtitles of the 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.

Section 301.9100-3 sets forth 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.

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

Section 1362(b) provides the rule on when an S election will be effective.
Generally, 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. If an S election is made after the first two and one-half months of a corporation's taxable year, then the corporation will not be treated as an S corporation until the taxable year after the year in which the S election is made.

Section 1362(b)(5) provides that if (1) an election under § 1362(a) is made for any taxable year after the date prescribed by section 1362 for making the election or no § 1362(a) election is made for any taxable year, and (2) the Secretary determines that

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there was reasonable cause for the failure to timely make the election, then the Secretary may treat the election as timely made for such taxable year.

Based on the facts submitted and representations made, we conclude that the requirements of § 301.9100-3 have been satisfied. As a result, X is granted an extension of time of 60 days from the date of this letter to file Form 8832 and elect to be classified as an association taxable as a corporation for federal tax purposes effective d1. A copy of this letter should be attached to the Form 8832.

In addition, we conclude that X has established reasonable cause for failing to make a timely election to be an S corporation for its taxable year that began on d1. Accordingly, provided that X makes an election to be an S corporation by filing a completed Form 2553 with the appropriate service center effective d1, within 60 days following the date of this letter, then such election will be treated as timely made. A copy of this letter should be attached to the Form 2553.

Except as specifically set forth above, no opinion is expressed or implied as to the federal income tax consequences of the transaction described above under any other provision of the Code. Specifically, no opinion is expressed on whether X is otherwise eligible to be an S corporation.

This ruling is directed only to the taxpayer on whose behalf it was requested.
Section 6110(k)(3) 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 authorized representative.

Sincerely,

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

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