PLR 1103005: Late entity-classification and S corporation elections receive relief

Plain-English summary

A newly formed entity intended to be classified as a corporation and elect S corporation status but failed to timely file the required Forms 8832 and 2553. The taxpayer asked for an extension to make the entity-classification election and relief for the late S corporation election. The IRS granted 120 days from the letter date to file the entity-classification election and, if the entity otherwise qualified, to file the S corporation election effective on the stated date. The ruling was based on the taxpayer's reasonable cause and the absence of government prejudice under the applicable relief rules.

Ruling snapshot

• Question: May the taxpayer make late entity-classification and S corporation elections?
• Outcome: approved
• Key authorities: IRC § 1362; 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: 201103005 Third Party Communication: None
Release Date: 1/21/2011 Date of Communication: Not Applicable
Index Number: 1362.01-03; 9100.31-00
Person To Contact:
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-------------------------- Telephone Number:
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----------------------------------- Refer Reply To:
----------------------------- CC:PSI:B2
PLR-113868-10
Date: September 20, 2010

Legend

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

State = -------

D1 = ----------------------

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

   This responds to the letter dated March 16, 2010, and subsequent

correspondence submitted on behalf of X by X's authorized representative, 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 an association
taxable 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.

   The information submitted states that X was formed in State on D1. It was

intended for X to be an S corporation effective D1. However, X inadvertently failed to
timely file a Form 8832, Entity Classification Election, and a Form 2553, Election by a
Small Business Corporation.

    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 under § 301.7701-3.
PLR-113868-10 2

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

otherwise, the 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.

    Section 301.7701-3(c)(1)(i) provides, in part, that an eligible entity may elect to

be classified other than as provided under § 301.7701-3(b), or to change its
classification, by filing Form 8832 with the service center designated on Form 8832.

    Section 301.7701-3(c)(1)(iii) provides that an election under § 301.7701-3(c)(1)(i)

will be effective on the date specified on Form 8832 or on the date filed if no such date
is specified on the form. The effective date specified on Form 8832 cannot be more
than 75 days prior to the date the form is filed and cannot be more than 12 months after
the date on which the form is filed.

    Section 301.9100-1(c) provides that the Commissioner has discretion to grant a

reasonable extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3,
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 a regulatory election to include
an election whose due date is prescribed by a regulation published in the Federal
Register.

  Section 301.9100-2 provides the rules governing automatic extensions of time for

making certain elections.

    Section 301.9100-3 sets forth the standards the Commissioner will use to

determine whether to grant an extension of time for regulatory elections that do not
meet the requirements of § 301.9100-2. Under § 301.9100-3, a request for relief will be
granted when the taxpayer provides evidence to establish to the satisfaction of the
Commissioner that (1) the taxpayer acted reasonably and in good faith, and (2) 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.

Generally, 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. Section 1362(b)(3) provides that if an S 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-113868-10 3

   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 the election for the
taxable year or no § 1362(a) election is made for any taxable year, and (B) the
Secretary determines that there was reasonable cause for the failure to timely make the
election, then the Secretary may treat the election as timely made for such taxable year
and § 1362(b)(3) shall not apply.

    Based solely on the facts submitted and the representations made, we conclude

that the requirements of § 301.9100-3 have been satisfied. As a result, X is granted an
extension of time of 120 days from the date of this letter to elect to be treated as an
association taxable as a corporation for federal tax purposes effective D1. The election
should be made by filing a Form 8832 with the appropriate service center. A copy of
this letter should be attached to the election.

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

we conclude that X has established reasonable cause for failing to make a timely
election to be an S corporation effective D1. Accordingly, provided that X otherwise
qualifies as an S corporation and makes an election to be an S corporation by filing a
completed Form 2553 with the appropriate service center effective D1 within 120 days
following the date of this letter, then such election will be treated as timely made for X's
taxable year beginning D1 . A copy of this letter should be attached to the election.

   Except as specifically set forth above, no opinion is expressed concerning the

federal tax consequences of the facts described above under any other provision of the
Code, including whether X was or is a small business corporation under § 1361(b).

  This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3)

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

   Pursuant to a power of attorney on file with this office, a copy of this letter is

being sent to X's authorized representatives.
PLR-113868-10 4

                       Sincerely,


                       Charlotte Chyr
                       Senior Technician Reviewer, Branch 2
                       Office of the Associate Chief Counsel
                       (Passthroughs & Special Industries)

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