PLR 1314030: IRS grants late entity-classification and S corporation election relief

Plain-English summary

An LLC intended to be treated as an S corporation effective on a specified date, but it did not timely file Forms 8832 and 2553. The IRS found that the taxpayer satisfied the standards for relief under the applicable regulations. It granted 120 days to elect corporate classification and allowed late S corporation election relief under IRC § 1362(b)(5). The relief depends on the entity otherwise qualifying as an S corporation and on timely filing the forms with a copy of the ruling attached.

Ruling snapshot

• Question: Can the LLC receive extra time to elect corporate classification and make a late S corporation election?
• Outcome: Approved, subject to the stated facts, representations, and filing conditions.
• Key authorities: IRC § 1362(b)(5); 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: 201314030 Third Party Communication: None
Release Date: 4/5/2013 Date of Communication: Not Applicable
Index Numbers: 1362.00-00, 1362.01-00,
1362.01-03, 9100.00-00, Person To Contact:
9100.31-00 ----------------------, ID No. -----------------
Telephone Number:
----------------------------- ---------------------
--------------------- Refer Reply To:
----------------------------------------- CC:PSI:B03
--------------- PLR-143048-12
-------------------------------- Date:
December 18, 2012

                                                LEGEND

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

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

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

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

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

   This letter responds to a letter dated June 14, 2012, and subsequent

correspondence, submitted on behalf of X by its authorized representative, requesting
an extension of time under § 301.7701-3(c) of the Procedure and Administration
Regulations 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

    X formed on Date 1 as a State limited liability company. X intended to be treated

as an S corporation for federal tax purposes effective Date 2. However, X inadvertently
failed to timely file Form 8832, Entity Classification Election, and Form 2553, Election by
a Small Business Corporation.
PLR-143048-12 2

                               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 is 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 the 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 as either 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.

    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
PLR-143048-12 3

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

X has satisfied the requirements of §§ 301.9100-1 and 301.9100-3. Accordingly, 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
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 X 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 X otherwise qualifies as an S corporation, we conclude that
X will be recognized as an S corporation effective Date 2, if X files a completed Form
2553 effective Date 2 with the appropriate service center within 120 days from the date
of this letter. A copy of this letter should be attached to the election.
PLR-143048-12 4

    Except as expressly provided herein, we express or imply no opinion concerning

the 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 X 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)

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

  In accordance with a power of attorney on file with this office, we are sending a

copy of this letter to your authorized representative.

   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:        ________________________________________
                                  Richard T. Probst
                                  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

cc: