PLR 1315010: Entity receives relief for late corporation and S corporation elections

Plain-English summary

The IRS granted an entity 120 days to make a late election to be treated as a corporation for federal tax purposes and to file a late S corporation election. The entity had intended both elections to be effective on a stated date, but neither Form 8832 nor Form 2553 was timely filed. The IRS found that the entity acted reasonably and in good faith and that granting relief would not prejudice the government. The relief was conditioned on filing the completed forms within 120 days and on the entity otherwise qualifying as an S corporation.

Ruling snapshot

• Question: Could the entity make late entity-classification and S corporation elections?
• Outcome: Approved, subject to filing the required forms within 120 days.
• Key authorities: Treas. Reg. §§ 301.7701-3 and 301.9100-1 through 301.9100-3; IRC § 1362(b)(5); IRC § 6110(k)(3).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201315010 Third Party Communication: None
Release Date: 4/12/2013 Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
---------------------------------- ----------------, ID No. ------------------
----------------------------------------------------------- Telephone Number:
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------------------------------------ Refer Reply To:
CC:PSI:B01
PLR-142926-12
Date:
January 02, 2013

LEGEND

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

D = --------------------

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

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

This responds to a letter dated September 22, 2012, submitted on behalf of X,
requesting an extension of time under § 301.9100-3 of the Procedure and
Administration Regulations to file an election under § 301.7701-3 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

According to the information submitted, X was formed on D under the laws of State. X‘s
sole member intended to treat X as an association taxable as a corporation and to elect
to be treated as an S corporation for federal tax purposes, with both elections effective
D. However, neither Form 8832, Entity Classification Election, nor Form 2553, Election
by a Small Business Corporation, was timely filed for X.

X represents that it acted reasonably and in good faith, and that the interests of the
government will not be prejudiced by granting relief. X further represents that no
hindsight is involved in seeking the relief requested.
PLR-142926-12 2

LAW AND ANALYSIS

Section 301.7701-3(a) provides that a business entity 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. Elections are necessary only when an eligible
entity does not want to be classified under the default classification or when an eligible
entity chooses to change its classification.

Section 301.7701-3(b)(2)(i) provides that, except for certain existing entities described
in § 301.7701-3(b)(3), unless a domestic eligible entity elects otherwise, the entity is (A)
a partnership if it has two or more members; or (B) 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)(2) by filing Form 8832 with the
appropriate service center. Under § 301.7701-3(c)(1)(iii), this election will be effective
on the date specified by the entity on Form 8832 or on the date filed if no such date is
specified. The date specified on Form 8832 cannot be more than 75 days prior to the
date on which the election is filed and no more than 12 months after the date the
election is filed.

Section 301. 9100-1(c) provides that the Commissioner may grant a reasonable
extension of time to make a regulatory election or a statutory election (but no more
than 6 months except in the case of a taxpayer who is abroad), under all subtitles of the
Internal Revenue Code except subtitles E, G, H, and I. Section 301. 9100-1(b) provides
that the term “regulatory election” includes an election whose due date is prescribed by
a regulation published in the Federal Register.

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 the election. Section

301. 9100-2 provides the rules governing automatic extensions of time for making
     certain elections. Section 301. 9100-3 provides the standards the Commissioner will
     use to determine whether to grant an extension of time for the regulatory elections that
     do not meet the requirements of § 301. 9100-2. Under § 301. 9100-3, a request for relief
     will be granted when a 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 make an election to be
an S corporation.

Section 1362(b) provides the rule on when an S election will be effective. Section
1362(b)(2) provides, in relevant part, that if an S election is made within the first two and
PLR-142926-12 3

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. Under § 1362(b)(3), an S
election made after the first two and one-half months of a corporation's taxable year,
results in the corporation not be treated as an S corporation until the taxable year
following the year in which the S election is filed.

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.

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 one hundred 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 D. 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 D, if X files a completed Form 2553
effective D 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 set forth herein, no opinion is expressed or implied concerning the
federal tax consequences of the facts described above under any other provision of the
Code, including 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) of the Code
provides that it may not be used or cited as precedent.
PLR-142926-12 4

Pursuant to a power of attorney on file with this office, a copy of this letter is being sent
to X's authorized representative.

                                    Sincerely,




                                    Associate Chief Counsel
                                    (Passthroughs & Special Industries)



                                    By: Laura Fields
                                    Laura Fields
                                    Senior Technician Reviewer, Branch 1
                                    Office of the Associate Chief Counsel
                                    (Passthroughs & Special Industries)

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