PLR 200520015: Single member LLC receives late entity classification and S election relief

Plain-English summary

A single member LLC intended to be taxed as an S corporation from the date it was formed, but it missed both the entity classification election and the S corporation election. The IRS granted 60 days to file Form 8832 so the LLC could elect corporate classification retroactively. It also found reasonable cause for the late S election and allowed the LLC 60 days to file Form 2553 effective from the same date. Both relief grants depend on timely filing the respective forms. The IRS did not decide whether the LLC otherwise met the requirements for S corporation status.

Ruling snapshot

• Question: Could the LLC make late elections for corporate classification and S corporation treatment from its formation date?
• Outcome: Sixty day filing extensions granted for Forms 8832 and 2553.
• Key authorities: IRC §§ 1362(b)(5), 1361(b); Treas. Reg. §§ 301.7701-3, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200520015
Release Date: 5/20/2005
Index Number: 1362.01-03; 9100.31-00

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Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:B02 – PLR-156407-03
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Date: January 14, 2005

LLC = --------------------------------------------------
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A = ---------------------------
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d1 = ------------------

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

This letter responds to a letter dated July 14, 2003, and subsequent correspondence, submitted on behalf of LLC by its authorized representative, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to elect to be treated as an association taxable as a corporation for federal tax purposes, and relief to file a late S corporation election under ' 1362(b)(5) of the Internal Revenue Code.

The information submitted states that LLC is a limited liability company formed on d1. A, as the sole member of LLC, represents that he intended for LLC to be an S corporation for federal tax purposes effective d1. However, a Form 2553, Election by a Small Business Corporation, was not filed timely for LLC. In addition, a Form 8832, Entity Classification Election, was not filed timely for LLC.

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.

Section 301.7701-3(b)(1) provides that an eligible entity with a single owner will be a disregarded as an entity separate from its owner unless it elects otherwise.

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Section 301.7701-3(c)(1)(i) provides that to elect to be classified other than as provided in 301.7701-3(b), an eligible entity must file Form 8832 with the designated service center. 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 cannot be more than 75 days prior to the date on which the election is filed and cannot be more than 12 months after the date on which the election is filed.

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, or a revenue ruling, revenue procedure, notice or an announcement published in the Internal Revenue Bulletin.

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 the Government.

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

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

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.

Based solely on the facts submitted and representations made, we conclude that the requirements of ' 301.9100-3 have been satisfied. As a result, LLC is granted an extension of time of 60 days from the date of this letter to file a Form 8832 with the appropriate service center and elect to be treated as an association taxable as a

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corporation for federal tax purposes effective d1. A copy of this letter should be attached to the Form 8832. A copy is included for that purpose.

In addition, we conclude that LLC has established reasonable cause for failing to make a timely election to be an S corporation effective d1. Accordingly, provided that LLC 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 for LLC effective d1. A copy of this letter should be attached to the Form 2553. A copy is included for that purpose.

Except as specifically set forth above, no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the Code, including whether LLC was or is a small business corporation under § 1361(b).

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 LLC’s authorized representative.

Sincerely,

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

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