PLR 200434013: Company gets relief for late corporate and S elections

Plain-English summary

The owners of a domestic limited liability company intended to elect corporate tax classification and S corporation treatment from its formation date, but inadvertently missed both filing deadlines. The IRS granted 60 days from the ruling letter to file Form 8832 for corporate classification under the section 301.9100 relief rules. It also found reasonable cause under section 1362(b)(5) and agreed to treat Form 2553 as timely if the company filed it within 60 days. The IRS did not decide whether the company otherwise qualified as an S corporation.

Ruling snapshot

• Question: Can the company make late corporate classification and S corporation elections effective from its formation date?
• Outcome: Approved, with both forms due within 60 days of the letter.
• 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: 200434013
Release Date: 8/20/04
Index Number: 1362.01-03, 9100.31-00

-----------------------
Person To Contact:
------------------------------------------------------------ ------------------------, ID No. -------------

• Telephone Number:
  ------------------------------------ ---------------------
  ------------------------ Refer Reply To:
  CC:PSI:3 – PLR-162624-03
  Date:
  - April 28, 2004
  -

LEGEND

X = ------------------------------------------------------------------------------------------------------
-----------------------

A = ------------------------------------------------------------------------------------------------------
-------------------------

B = ------------------------------------------------------------------------------------------------------
-------------------------

C = ------------------------------------------------------------------------------------------------------
-------------------------

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

D1 = ----------------------

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

This letter responds to a letter, dated July 30, 2003, and subsequent correspondence from your authorized representative on behalf of X, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations for X to file an election to be classified as a corporation for federal tax purposes, and for X to be treated as an S corporation under § 1362(b)(5) of the Internal Revenue Code.

PLR-162624-03
2

FACTS

According to the information submitted, X was organized on D1 in State as a limited liability company. X’s owners, A, B, and C, intended to file Form 8832, Entity Classification Election, to elect to treat X as a corporation for federal tax purposes, and Form 2553, Election by a Small Business Corporation, to treat X as an S corporation. However, due to inadvertence, neither form was filed timely.

LAW AND ANALYSIS

Section 301.7701-3(a) provides, in part, 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 as provided in § 301.7701-3. 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.

Section 301.7701-3(b)(1)(i) provides, in part, that unless a domestic eligible entity elects otherwise it is a partnership if it has two or more members.

Section 301.7701-3(c)(1)(i) provides, in part, that an eligible entity may elect to be classified other than as provided under ' 301.7701-3(b) by filing Form 8832, Entity Classification Election, with the applicable service center.

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

Under ' 301.9100-1(c) the Commissioner may grant a reasonable extension of time 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, if the taxpayer demonstrates to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and that granting the relief will not prejudice the interests of the government.

Sections 301.9100-2 and 301-9100-3 provide the standards the Commissioner will use to determine whether to grant an extension of time to make an election. Section 301.9100-2 provides automatic extensions of time for making certain elections. Section 301.9100-3 provides extensions of time for making elections that do not meet the requirements of ' 301.9100-2. Requests for relief under ' 301.9100-3 will be

granted when the taxpayer provides evidence to establish 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 may elect to be an S corporation.

Section 1362(b) provides the rule on when an S election will be effective. 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 § 1362 for making the election or no § 1362(a) election is made for any taxable year, and (2) the Secretary determines that 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.

CONCLUSION

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.

Under a power of attorney on file with this office, we are sending a copy of this letter to X’s authorized representative.

Sincerely,

/s/

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

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