PLR 1226017: IRS grants late entity-classification and S election relief

Plain-English summary

The IRS grants a limited liability company 120 days to make a late election to be treated as an association taxable as a corporation for federal tax purposes. It also grants relief for a late S corporation election, provided the company otherwise qualifies as an S corporation and files Form 2553 within the same 120-day period. The ruling treats the company as an S corporation effective on the specified date if those conditions are met. It expresses no opinion on the company's other eligibility for S corporation status.

Ruling snapshot

• Question: May a limited liability company receive more time to make its entity-classification election and late S corporation election?
• Outcome: Approved
• Key authorities: IRC §§ 1361 and 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: 201226017 Third Party Communication: None
Release Date: 6/29/2012 Date of Communication: Not Applicable
Person To Contact:
Index Numbers: 1362.00-00, 1362.01-00, ---------------------, ID No. -----------------
Telephone Number:
1362.01-03, 9100.00-00,
-------------------
9100.31-00 Refer Reply To:
CC:PSI:B03
----------------------- PLR-147707-11
-------------------- Date:
------------------- January 30, 2012

                                               LEGEND

Company = -------------------------------------------------------------------------------------------------
-----------------------

A = -------------------------------------------------------------------------------------------------
--------------------------

B = -------------------------------------------------------------------------------------------------
--------------------------

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

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

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

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

    This letter responds to a letter dated September 12, 2011, and subsequent

correspondence, submitted by 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

PLR-147707-11 2

   Company was formed on Date 1 as a State limited liability company. Company’s

members, A and B, 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.

                                        LAW

  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 at least two members can elect to be classified either as an association (and
thus a corporation under § 301.7701-2(b)(2)) or a partnership.

   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.
PLR-147707-11 3

    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 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.
PLR-147707-11 4

    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
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 ruling contained in this letter is 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 request, it is subject to verification on examination.

                                  Sincerely,

                                  Associate Chief Counsel
                                  (Passthroughs & Special Industries)



                                  By:_____/s/_________________
                                     James A. Quinn
                                     Senior Counsel, Branch 3
                                     Office of the Associate Chief Counsel
                                     (Passthroughs & Special Industries)

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

cc: