PLR 200550023: Partnership gets more time to elect corporate classification

Plain-English summary

An S corporation converted under state law into a limited partnership. The partnership intended to elect corporate tax classification effective on the conversion date but missed the Form 8832 deadline. The IRS found that it qualified for relief under the late election regulations and gave it 60 days from the ruling date to file Form 8832 with the ruling attached. The IRS did not decide whether the conversion was a tax reorganization or whether the partnership could qualify as an S corporation.

Ruling snapshot

• Question: May the partnership file a late corporate classification election effective on its conversion date?
• Outcome: Approved, with 60 days to file Form 8832.
• Key authorities: Treas. Reg. §§ 301.7701-3(c), 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200550023
Release Date: 12/16/2005
Index Number: 9100.31-00

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Person To Contact:
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--------------------, ID No. -------------
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Telephone Number:
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Refer Reply To:
CC:PSI:B02 – PLR-133522-05
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Date:
August 25, 2005

Legend

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

LP = ----------------------------
EIN: ----------------

State = --------

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

Dear ------------,

This responds to your letter dated May 18, 2005, and subsequent correspondence, submitted on behalf of LP, requesting an extension under ' 301.9100- 3 of the Procedure and Administration Regulations for LP to elect to be treated as an association taxable as a corporation for federal tax purposes.

The information submitted states that on D1, X, an S corporation, reorganized under the laws of State to LP, a State limited partnership. LP intended to elect to be treated as a corporation under ' 301.7701-3(c) effective on D1. However, LP inadvertently failed to timely file a Form 8832, Entity Classification Election.

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. A "business entity" is any entity recognized for federal tax purposes that is not properly classified as a trust under ' 301.7701-4 or otherwise subject to special treatment under the Internal Revenue Code. Section 301.7701-2(a). An eligible entity with at least two members can elect 2 PLR-133522-05

either to be classified as an association (and thus a corporation under ' 301.7701- 2(b)(2)) or a partnership.

Section 301.7701-3(b)(1) provides that an eligible entity with at least two owners will be classified as a partnership unless it elects otherwise.

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 will be effective on the date specified on the Form 8832 or on the date filed if no such date is specified. The effective date specified on the Form 8832 cannot be more than 75 days prior to the date 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. 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, or a revenue ruling, revenue procedure, notice, or an announcement published in the Internal Revenue Bulletin.

Sections 301.9100-1 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.

Section 301.9100-3(a) provides that 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 301.9100-3(b)(1)(v) provides that a taxpayer is deemed to have acted reasonably and in good faith if the taxpayer reasonably relied on a qualified tax professional, including a tax professional employed by the taxpayer, and the tax professional failed to make, or advise the taxpayer to make, the election.

Based solely on the facts submitted and representations made, we conclude that the requirements of ' 301.9100-3 have been satisfied. As a result, LP 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 electing under ' 301.7701-3(c) to be classified as an association taxable as corporation for federal tax purposes effective D1. A copy of this letter should be attached to the Form 8832. 3 PLR-133522-05

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. Specifically, we express or imply no opinion concerning whether the conversion of X to LP qualifies as a reorganization under § 368(a)(1)(F), whether LP, as a State limited partnership, has more than one class of stock under § 1361(d)(1)(D) and thus is ineligible to be an S corporation, or whether LP is otherwise eligible to be an S corporation. See Rev. Proc. 99-51, 1999-2 C.B. 750; Rev. Proc. 2005-3, 2005-1 I.R.B.118, 126, Sec. 5.05.

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

In accordance with a power of attorney on file with this office, a copy of this letter is being sent to LP’s authorized representative.

Sincerely,

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