IRS grants extra time for late entity-classification and S corporation elections

Plain-English summary

The IRS considered a newly formed eligible entity's request to make a late election to be classified as an association taxable as a corporation and a late S corporation election. The entity had intended both elections to be effective on the same redacted date but did not timely file Forms 8832 and 2553. The IRS found that the requirements for an extension of time and reasonable cause were satisfied. It granted 120 days from the letter date to file both forms, with copies of the ruling attached, so the elections could have the requested effective date. The ruling did not decide whether the entity otherwise qualified as a small business corporation under § 1361(b).

Ruling snapshot

• Question: Could the entity receive relief to make its late classification and S corporation elections?
• Outcome: Approved, 120-day extension and late-election relief granted
• Key authorities: IRC §§ 1362 and 6110; 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: 201408022 Third Party Communication: None
Release Date: 2/21/2014 Date of Communication: Not Applicable
Index Number: 1362.01-03, 9100.31-00 Person To Contact:
-------------------------, ID No. ------------------
------------------------------------ -----------------------------------------------------
--------------------------------- Telephone Number:
-------------------------- ----------------------
------------------------------------- Refer Reply To:
CC:PSI:B02
PLR-128031-13
Date:
September 09, 2013

Legend

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

State = ---------

Date = --------------------

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

     This responds to a letter dated June 7, 2013, and subsequent correspondence,

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 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 is an eligible entity that was formed on

Date under the laws of State. X intended to elect to be treated 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 Date. However, X failed to properly and timely
file the Form 8832, Entity Classification Election, and the 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. 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.
PLR-128031-13 2

  Section 301.7701-3(b)(1) provides that, 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 that an eligible entity may elect to be

classified other than as provided under § 301.7701-(3)(b) 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.

   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 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.

Section 1362(b)(2) provides in relevant part that 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. Under
§ 1362(b)(3), however, if an S election is made after the first two and one-half months of
a corporation’s taxable year, then that corporation will not be treated as an S
corporation until the taxable year after 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 such election for
such taxable year or no such 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, then the Secretary may treat such an election as timely made for such
taxable year.
PLR-128031-13 3

    Based solely on the information submitted and the representations made, we

conclude that the requirements of §§ 301.9100-1 and 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
file a Form 8832 with the appropriate service center and elect to be treated as an
association taxable as a corporation for federal tax purposes, effective Date. A copy of
this letter should be attached to the Form 8832.

    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 Date. Accordingly, provided that X makes an
election to be an S corporation by filing a complete Form 2553 effective Date, along with
a copy of this letter, with the appropriate service center within 120 days from the date of
this letter, then such election will be treated as timely made for Date.

  Except as expressly provided herein, no opinion is expressed or implied

concerning the federal income 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) of the Code.

  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.

     In accordance with the power of attorney on file with this office, a copy of this

letter is being sent to your authorized representative.

                                       Sincerely,

                                       Associate Chief Counsel
                                       (Passthroughs & Special Industries)


                                By:    ______________________________
                                       Melissa C. Liquerman
                                       Branch Chief, Branch 2
                                       Office of Associate Chief Counsel
                                       (Passthroughs & Special Industries)

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

cc: