PLR 200606025: LLC given time for corporate classification and S elections

Plain-English summary

A limited liability company intended to be taxed as an S corporation from its formation date, but missed both the Form 8832 entity classification election and the Form 2553 S corporation election. The IRS granted 60 days to file Form 8832 electing corporate tax treatment from that date under Treasury Regulation section 301.9100-3. It also found reasonable cause under section 1362(b)(5) and would treat a Form 2553 filed within 60 days as timely from the same date. Each form had to include a copy of the ruling. The IRS did not decide whether the company otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Could the LLC make late corporate classification and S corporation elections effective from formation?
• Outcome: Approved both forms of deadline relief, subject to filing 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: 200606025
Release Date: 2/10/2006
Index Number: 9100.31-00; 1362.01-03

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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-142482-05
Date:
October 21, 2005

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Legend

LLC = -----------------------------
EIN: ----------------

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

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

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

This responds to your letter dated July 7, 2005, and subsequent correspondence, submitted on behalf of LLC, requesting an extension under ' 301.9100-3 of the Procedure and Administration Regulations for LLC 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, a member of LLC, represents that LLC was intended 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. Additionally, 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. 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

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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.

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

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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 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 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.

Additionally, 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.

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, 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) 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 LLC’s authorized representative.

Sincerely,
Heather C. Maloy
Associate Chief Counsel
(Passthroughs and Special Industries)
Enclosures: 2
Copy of this letter
Copy for § 6110 purposes
Cc: