PLR 1035012: IRS granted late-election relief for corporate and S corporation status

Plain-English summary

The IRS granted a limited liability company an extension of time to file Form 8832 to elect classification as an association taxable as a corporation. The IRS also granted relief to file a late Form 2553 election to be treated as an S corporation, effective on the requested date, provided the entity otherwise qualified and filed the form within 60 days. The ruling concluded that the taxpayer satisfied the reasonable-cause requirements under Treas. Reg. § 301.9100-3. The relief was based solely on the taxpayer’s submitted facts and representations.

Ruling snapshot

• Question: May the LLC make late entity-classification and S corporation elections effective on the requested date?
• Outcome: Approved
• Key authorities: IRC §§ 1362(a), 1362(b)(5), and 6110; Treas. Reg. §§ 301.7701-3 and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201035012 Third Party Communication: None
Release Date: 9/3/2010 Date of Communication: Not Applicable
Index Number: 1362.01-03 Person To Contact:
------------------- --------------------, ID No. ------------
----------------------------------------- Telephone Number:
----------------- --------------------
--------------------------- Refer Reply To:
CC:PSI:B01
PLR-154385-09
Date:
May 25, 2010

Legend:

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

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

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

Date 2= -----------------

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

  This letter responds to your request, on behalf of X, dated November 24, 2009,

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

  X was organized as a limited liability company under the laws of State on Date 1.

The shareholder of X intended that X elect to be treated as an S corporation effective
Date 2. However, a Form 2553, Election by a Small Business Corporation, was not
timely filed for X. Accordingly, X requests a ruling that it will be treated as an
association taxable as a corporation and as an S corporation effective Date 2.

                                  Law and Analysis

    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 a single owner can elect to be classified
either as an association or as an entity separate from its owner.

   Section 301.7701-3(b)(1)(ii) provides that unless a domestic eligible entity elects

otherwise, the entity 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 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) of the Code provides that a small business corporation can elect

to be treated as an S corporation.

    Section 1362(b) of the Code provides guidance on when the 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 made. If the corporation makes an election 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) of the Code provides that if no election is made pursuant to

section 1362(a), or if the election is made after the date prescribed for making such an
election, and the Secretary determined reasonable cause existed for the failure to timely
make the election, then the Secretary can treat such an election as being timely made
for that taxable year and effective as of the first day of that taxable year.

                                    Conclusion

   Based solely on the facts submitted and 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 sixty (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 2. A copy of this letter
should be attached to the form.

    In addition, based solely on the facts submitted and representations made, and

provided that X otherwise qualifies as a subchapter S corporation, we conclude that X
has established reasonable cause for failing to make a timely election to be an S
corporation effective Date 2. Accordingly, provided that X makes an election to be an S
corporation by filing a completed Form 2553 effective Date 2, 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 Date 2.

   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(s) requesting it. Section 6110(k)(3)

of the Code provides that it may not be used or cited as precedent.

PLR-154385-09 4

    Pursuant to the Power of Attorney on file with this office, we will send a copy of

this ruling to your representative.

                                   Sincerely,


                                   Faith P. Colson
                                   Faith P. Colson
                                   Senior Counsel, Branch 1
                                   (Passthroughs & Special Industries)

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