PLR 200737016: LLC receives relief for two missed tax elections

Plain-English summary

An LLC intended to be taxed first as a corporation and then as an S corporation from its formation date. It failed to file both the entity classification election on Form 8832 and the S election on Form 2553 on time. The IRS allowed it 60 days from the letter date to file each form for the intended effective date. Recognition of S corporation status depends on the LLC otherwise meeting the S corporation requirements. The IRS did not rule on other tax consequences.

Ruling snapshot

• Question: Could the LLC make both its late corporate classification and S corporation elections effective 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, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200737016
Third Party Communication: None
Release Date: 9/14/2007
Date of Communication: Not Applicable
Index Numbers: 7701.00-00, 1362.01-03,
9100.31-00
Person To Contact:
-----------------, ID No. -------------
--------------------------------------
Telephone Number:
-----------------------------
---------------------
------------------
Refer Reply To:
----------------------------------------
CC:PSI:B01
PLR-111234-07
Date: June 15, 2007

LEGEND

LLC = -----------------------------
---------------------------------------------------

Date = ---------------------

State = -----------

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

This is in response to a letter dated December 7, 2006, and subsequent correspondence, submitted on behalf of LLC, requesting an extension of time under
§ 301.9100-3 of the Procedure and Administration Regulations to file an election under
§ 301.7701-3(c) to be treated 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.

FACTS

According to the information submitted, LLC was formed on Date as a limited liability company under the laws of State. LLC intended to elect to be treated as an association taxable as a corporation and to then elect to be treated as an S corporation for federal tax purposes, with both elections effective Date. However, neither Form 8832, Entity Classification Election, nor Form 2553, Election by a Small Business Corporation, was timely filed.

LAW AND ANALYSIS
PLR-111234-07
2

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 an 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 Code. Section 301.7701-2(a). An eligible entity with at least two members can elect to be classified as an association (and thus a corporation under § 301.7701-2(b)(2)) or as a partnership.

Section 301.7701-3(b)(1)(ii) provides that unless a domestic entity elects otherwise, the entity 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 with the service center designated on the form.

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 nor 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.

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 announcement published in the Internal Revenue Bulletin.

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 301.9100-3(a).

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
PLR-111234-07
3

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.

CONCLUSION

Based solely on the facts submitted and the representations made, we conclude that LLC has satisfied the requirements of §§ 301.9100-1 and 301.9100-3. As a result, LLC is granted an extension of time of 60 days from the date of this letter to file a properly executed Form 8832 with the appropriate service center, electing to be treated as an association taxable as a corporation for federal tax purposes effective Date. A copy of this letter should be attached to the election.

In addition, based solely on the facts submitted and the representations made, and provided that LLC otherwise qualifies as an S corporation, we conclude that LLC will be recognized as an S corporation effective Date. A Form 2553 along with a copy of this letter must be forwarded to the appropriate service center within 60 days from the date of this letter.

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.

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.
PLR-111234-07
4

In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representative.

Sincerely,

William P. O'Shea
Associate Chief Counsel
(Passthroughs & Special Industries)

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