PLR 200652016: LLC receives relief for both corporate-classification and S elections

Plain-English summary

A domestic limited liability company intended S corporation treatment from formation but failed to file either its entity-classification election or S election. The IRS found the requirements for relief met and granted 60 days to file Form 8832 for corporate classification from the intended date. It also allowed recognition as an S corporation from that date if the company otherwise qualified and filed a properly completed Form 2553 within the same 60-day period. Copies of the ruling had to accompany both elections. The ruling left other federal tax consequences unaddressed.

Ruling snapshot

• Question: May the LLC correct both missed elections to obtain its intended corporate and S classification from formation?
• Outcome: Approved, subject to filing both forms within 60 days and otherwise qualifying for S status.
• Key authorities: IRC § 1362(b)(5); Treas. Reg. §§ 301.7701-3(c) and 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200652016
Third Party Communication: None
Release Date: 12/29/2006
Date of Communication: Not Applicable
Index Number: 1362.01-03, 7701.00-00,
9100.00-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
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CC:PSI:B01
PLR-121972-06
Date: September 12, 2006
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Legend
X = -------------------------------------------------
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A = -------------------
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State = ------

Date1 = --------------------

Dear ------------

This letter responds to your letter dated January 27, 2006, and related correspondence, written on behalf of X, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to file a Form 8832, Entity Classification Election, electing under § 301.7701-3(c) to treat X as an association taxable as a corporation, and under § 1362(b)(5) of the Internal Revenue Code, to file a late Form 2553, electing to treat X as an S corporation.

FACTS

The information submitted states that X was formed as a limited liability company under the laws of State on Date1. X intended to be an S corporation, effective Date1, but the elections (Form 8832 and Form 2553) were not filed.

PLR-121972-06
2

LAW AND ANALYSIS

Section 301.7701-3(a) provides that a business entity 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, except as provided in § 301.7701- 3(b)(3) (relating to eligible entities existing prior to the effective date of this section), unless the entity elects otherwise, a domestic eligible entity is classified as a partnership if it has two or more members, and is disregarded as an entity separate from its owner if it has a single owner.

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 appropriate service center. Under § 301.7701- 3(c)(1)(iii), this election will be effective on the date specified by the entity on Form 8832 or on the date filed if no such date is specified. The date specified on Form 8832 cannot be more than 75 days prior to 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 E, G, H, and I. Section 301.9100-1(b) defines the term “regulatory election” as including an election whose deadline is prescribed by a regulation published in the Federal Register.

Sections 301.9100-1 through 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 the 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.

PLR-121972-06
3

Section 1362(b)(5) provides that if no election is made pursuant to § 1362(a), or, if made, the election is made after the date prescribed for making such an election, and the Secretary determines there was reasonable cause for the failure to timely make the election, then the Secretary may treat such an election as timely made for such taxable year and effective as of the first day of that tax year.

CONCLUSION

Based solely on the facts submitted and representations made, we conclude that the requirements of § 301.9100-3 are satisfied. As a result, X is granted an extension of time of 60 days from the date of this letter to make an entity classification election by filing a Form 8832, effective Date1, with the appropriate service center. A copy of this letter should be attached to the election. A copy of this letter is attached for this purpose.

Further, we conclude that X will be recognized as an S corporation effective Date1, provided that X otherwise qualifies as a subchapter S corporation and within 60 days from the date of this letter, X submits a properly completed Form 2553, with a copy of this letter attached, to the relevant service center.

Except as specifically set forth above, we express or imply no opinion concerning the federal tax consequences of the facts described above under any other provision of the Code.

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 mailed to your authorized representative.

Sincerely,

Heather Maloy
Associate Chief Counsel
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

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