PLR 201119009: IRS grants time for entity-classification and S corporation elections

Plain-English summary

A limited liability company intended to be treated as an S corporation but missed both the entity-classification and S corporation election deadlines. The IRS granted 120 days to file Form 8832 and elect association treatment effective on the requested date. It also granted relief for the late S corporation election, provided the company otherwise qualified and filed Form 2553 within the same 120-day period. The ruling did not decide whether the company otherwise met the requirements to be an S corporation.

Ruling snapshot

• Question: May the company make late elections for association classification and S corporation treatment?
• Outcome: Approved, with a 120-day extension for both elections.
• Key authorities: IRC §§ 1361 and 1362; 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: 201119009
Third Party Communication: None
Release Date: 5/13/2011
Date of Communication: Not Applicable
Index Numbers: 1362.01-03, 9100.31-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:B03
PLR-132942-10
Date:
January 31, 2011

Legend

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

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

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

A = -------------------------------------------------------------------------------------------------
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Dear -------------------:

This letter responds to a letter dated June 23, 2010, and subsequent correspondence, submitted on behalf of Company, 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, as well as relief to file a late S corporation election under § 1362(b)(5) of the Internal Revenue Code (Code).

Facts

Company was formed on Date 1 as a State limited liability company. Company’s sole member, A, intended that Company be treated as an S corporation for federal tax purposes effective Date 2. However, Company inadvertently failed to timely file a Form 8832, Entity Classification Election, and a Form 2553, Election by a Small Business Corporation.

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Law and Analysis

Section 1362(a)(1) provides that, except as provided in § 1362(g), a small business corporation may elect, in accordance with the provisions of § 1362, to be an S corporation.

Section 1362(b)(1) provides that an election under § 1362(a) may be made by a small business corporation for any taxable year (A) at any time during the preceding taxable year, or (B) at any time during the taxable year and on or before the 15th day of the third month of the taxable year.

Section 1362(b)(3) provides that if (A) a small business corporation makes an election under § 1362(a) for any taxable year, and (B) the election is made after the 15th day of the third month of the taxable year and on or before the 15th day of the third month of the following taxable year, then the election shall be treated as made for the following taxable year.

Section 1362(b)(5) provides that if (A) an election under § 1362(a) is made for any taxable year (determined without regard to § 1362(b)(3)), 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 such election, the Secretary may treat the election as timely made for the taxable year (and § 1362(b)(3) shall not apply).

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 as provided in § 301.7701-3. An eligible entity with a single owner can elect to be classified as an association (and thus a corporation under § 301.7701-2(b)(2)) or to be disregarded as an entity separate from its owner.

Section 301.7701-3(b)(1) 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.

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 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

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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. If an election specifies an effective date more than 75 days prior to the date on which the election is filed, it will be effective 75 days prior to the date it was filed.

Section 301.7701-3(c)(1)(v)(C) provides that an eligible entity that timely elects to be an S corporation under § 1362(a)(1) is treated as having made an election under § 301.7701-3 to be classified as an association, provided that (as of the effective date of the election under § 1362(a)(1)) the entity meets all other requirements to qualify as a small business corporation under § 1361(b). Subject to § 301.7701-3(c)(1)(iv), the deemed election to be classified as an association will apply as of the effective date of the S corporation election and will remain in effect until the entity makes a valid election, under § 301.7701-3(c)(1)(i), to be classified as other than an association.

Section 301.9100-1(c) provides that the Commissioner may 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 not more than 6 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 301.9100-2 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.

Section 301.9100-3(a) provides that requests for relief subject to § 301.9100-3 will be granted when the taxpayer provides the evidence (including affidavits described in § 301.9100-3(e)) to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and the grant of relief will not prejudice the interests of the Government.

Conclusion

Based solely on the facts submitted and representations made, we conclude that Company has satisfied the requirements of §§ 301.9100-1 and 301.9100-3. Accordingly, Company is granted an extension of time of one-hundred and twenty (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 Date 2. The election should be made by filing a properly executed Form 8832 with the appropriate service center. A copy of this letter should be attached to the election.

In addition, we conclude that Company has established reasonable cause for failing to timely make an election to be an S corporation and, thus, is eligible for relief under § 1362(b)(5). Provided that Company otherwise qualifies as an S corporation, we conclude that Company will be recognized as an S corporation effective Date 2, if

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Company files a completed Form 2553 effective Date 2 with the appropriate service center within one-hundred and twenty (120) days from the date of this letter. A copy of this letter should be attached to the election.

Except as expressly provided herein, we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter. Specifically, we express or imply no opinion as to whether Company is otherwise eligible to be an S corporation for federal tax purposes.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

The rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the ruling requests, it is subject to verification on examination.

In accordance with the power of attorney on file with this office, we are sending a copy of this letter to your authorized representative.

Sincerely,

Associate Chief Counsel
(Passthroughs and Special Industries)

/s/ Mary Beth Carchia

By: _______ Mary Beth Carchia, Senior Technician Reviewer Branch 3
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosures (2)
A copy of this letter
A copy for § 6110 purposes