PLR 200906029: An entity received relief for late corporate and S elections

Plain-English summary

A domestic eligible entity intended to elect association taxable as a corporation status and then S corporation status, both from its formation date. The IRS had not received the necessary elections. It concluded that the entity satisfied the standards for discretionary relief under Treasury Regulations sections 301.9100-1 and 301.9100-3 and granted 60 days to file Form 8832 for the intended effective date. Provided the entity otherwise qualified as an S corporation, it would also be treated as one from that date if it filed Form 2553 within the same 60-day period. Copies of the ruling had to accompany both forms, and the IRS did not otherwise decide substantive S corporation eligibility.

Ruling snapshot

• Question: Could the entity make late corporate-classification and S corporation elections effective from its formation date?
• Outcome: Approved: Forms 8832 and 2553 had to be filed within 60 days, with S treatment subject to substantive eligibility.
• Key authorities: IRC §§ 1361, 1362(a), 1362(b)(5); Treas. Reg. §§ 301.7701-3, 301.9100-1, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200906029
Third Party Communication: None
Release Date: 2/6/2009
Date of Communication: Not Applicable
Index Number: 1361.00-00, 9100.31-00,
7701.00-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
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CC:PSI:02
PLR-129970-08

Date:
October 07, 2008

X = ------------------------------------------------
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State = ------------------

Date 1 = -----------------

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

This letter responds to a letter dated June 23, 2008, submitted on behalf of X by its authorized representative, requesting a ruling under § 301.9100-3 of the Procedure and Administration Regulations, that X be granted an extension of time to elect under § 301.7701-3(a) to be classified as an association taxable as a corporation for federal tax purposes and requesting relief under § 1362(b)(5) of the Internal Revenue Code.

According to the information submitted, X was formed on Date 1 under State law.
X intended to elect to be treated as an association taxable as a corporation and to then elect to be treated as an S corporation, with both elections effective Date 1. However, the Service never received the proper elections.

Section 301.7701-3(a) provides that a business entity that is not classified as a corporation under section 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) provides that except as provided in § 301.7701-3(b)(3), unless the entity elects otherwise, a domestic eligible entity is (i) a partnership if it has two or more members; or (ii) disregarded as an entity separate from its owner if it has a single owner.
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To elect to be classified other than as provided in § 301.7701-3(b), an eligible entity must file Form 8832, Entity Classification Election, with the service center designated on that Form. Section 301.7701-3(c)(1)(iii) provides that all such elections become effective on the date specified by the entity on Form 8832 or on the date filed if no effective date is specified. The specified effective date must not be earlier than 75 days prior to the filing date of Form 8832, nor later than twelve months after the filing date.

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.

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 Government.

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

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 information submitted and the representations made, we conclude that X has satisfied the requirements of §§ 301.9100-1 and 301.9100-3. As a result, X is granted an extension of time of 60 days from the date of this letter to elect to be treated as an association taxable as a corporation for federal tax purposes, effective Date 1. X should make the election by filing Form 8832 with the relevant service center. A copy of this letter should be attached to that form.

In addition, provided that X otherwise qualifies as a subchapter S corporation, we conclude that X will be treated as an S corporation effective Date 1. A Form 2553, Election by a Small Business Corporation, along with a copy of this letter must be forwarded to the relevant 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
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referenced in this letter. Specifically, no opinion is expressed concerning whether X is, in fact, eligible to be an S corporation for federal tax purposes.

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 X's authorized representative.

Sincerely,

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

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