PLR 200518032: LLC received relief for late corporate and S corporation elections

Plain-English summary

An LLC intended from formation to be taxed as a corporation and to elect S corporation status, but filed neither election on time. The IRS granted an extension under the regulatory election relief rules to file Form 8832 for corporate classification. It also granted relief under IRC § 1362(b)(5) so the S election could take effect from the same formation date if the LLC otherwise qualified. Both Forms 8832 and 2553 had to be filed within 60 days of the letter with copies of the ruling attached. The IRS did not independently determine that the LLC satisfied the S corporation eligibility requirements.

Ruling snapshot

• Question: Could the LLC make both its late corporate classification and S elections effective from formation?
• Outcome: Approved, subject to filing both forms within 60 days and 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
Washington, DC 20224
Number: 200518032
Third Party Communication: None
Release Date: 5/6/2005
Date of Communication: Not Applicable
Index Numbers: 1362.01-03, 9100.31-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:B01
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Date:
January 19, 2005

Legend

X = -------------------------------------
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D1 = ----------------

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

This responds to a letter dated July 27, 2004, 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

X, a limited liability company, was formed on D1. X intended from inception to elect to be treated as an association taxable as a corporation and to elect to be treated as an S corporation, with both elections effective D1. However, X failed to timely file either election.

Law and Analysis

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.
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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 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 service center designated on Form 8832.

Section 301.7701-3(c)(1)(iii) provides 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.
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 (1) no ' 1362(a) election is made for any taxable year and (2) the Secretary determines that there was reasonable cause for the
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failure to timely make such election, then the Secretary may treat such an election as timely made for such taxable year and ' 1362(b)(3) shall not apply.
Conclusion

Based solely on the facts submitted and the representations made, we conclude that the requirements of '' 301.9100-1 and 301.9100-3 have been satisfied. As a result, X is granted an extension of time to elect to be taxed as an association effective D1. X has 60 days from the date of this letter to file Form 8832 with the appropriate service center to elect to be treated as an association for federal tax purposes effective D1. A copy of this letter should be attached to that form.

In addition, based solely on the facts 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 D1. 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 provided herein, no opinion is expressed or implied as to the federal tax consequences of the facts described above under any other provision of the Code. Specifically, no opinion is expressed concerning whether X is, in fact, an S corporation for federal tax purposes.

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

Sincerely,

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

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