PLR 1033004: IRS granted relief for late entity classification and S corporation elections

Plain-English summary

An LLC intended to be classified as a corporation and treated as an S corporation from its formation date, but it did not timely file Form 8832 or Form 2553. The IRS granted the LLC 60 days to file Form 8832 and elect corporate classification effective from the specified date. It also granted relief for the late S corporation election, conditioned on filing Form 2553 with a copy of the ruling within 60 days. The ruling did not address whether the entity otherwise qualified as an S corporation.

Ruling snapshot

• Question: Could the LLC make late entity-classification and S corporation elections effective from its specified date?
• Outcome: Approved
• Key authorities: IRC § 1362(b)(5); Treas. Reg. §§ 301.7701-3 and 301.9100-3.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201033004 Third Party Communication: None
Release Date: 8/20/2010 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-106893-10
Date:
May 11, 2010

LEGEND

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

D = ------------------

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

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

This is in response to a letter dated January 18, 2010, and subsequent correspondence,
submitted on behalf of X, 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, X was formed on D as a limited liability
company under the laws of State. X intended to be treated as a subchapter S
corporation for federal tax purposes effective D. However, neither Form 8832, Entity
Classification Election, nor Form 2553, Election by a Small Business Corporation, was
timely filed with the appropriate service center.

LAW AND ANALYSIS

PLR-106893-10 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. An eligible entity with a single owner can
elect to be classified as an association or to be disregarded as an entity separate from
its owner.

Section 301.7701-3(b)(1)(ii) provides that unless the entity elects otherwise, a domestic
eligible entity with a single owner is disregarded as an entity separate from its 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 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 and
can not be 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 an 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 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 was

PLR-106893-10 3

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 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 X
has satisfied the requirements of § 301.9100-3. As a result, X 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 D. A copy of this letter should be attached
to the election.

In addition, we conclude that X has established reasonable cause for failing to make a
timely election to be an S corporation effective D. Accordingly, provided that X makes
an election to be an S corporation by filing a properly completed Form 2553 effective D,
along with a copy of this letter, with the appropriate service center within 60 days from
the date of this letter, such election will be treated as timely made effective D.

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.

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,


                                   Curt G. Wilson
                                   Associate Chief Counsel
                                   (Passthroughs & Special Industries)


                                   By:David R. Haglund

PLR-106893-10 4

                             David R. Haglund
                             Chief, Branch 1
                             Office of Associate Chief Counsel
                             (Passthroughs & Special Industries)

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